I just saw the most recent list of the forty richest Filipinos. It is an impressive list that includes the youngest billionaire in the person of Edgar Sia (of the Mang Inasal fame) to Henry Sy (of the huge SM Group). A good number of them are rags to riches story.
The list is aspirational for the reader. But the common reaction would be to say that being a billionaire is probably reserved for just a privileged few and that striving to be a millionaire alone is already a huge challenge.
But here’s the surprise! Many people, especially those who are gainfully employed are already multi-millionaires. And here’s the other surprise. It is typically the lenders who know that people are multi-millionaires.
Up to this point in this blog you would have probably gone from excitement to bewilderment. Allow me to untangle the mess of emotions I have created.
Consider a person at age 21 who earns the minimum monthly employment income for 13 months a year. Add to that a 5% annual pay increase and a sprinkling of a higher increase due to promotions. Top it off with the standard retirement pay provided by law and you get an earnings potential for the career of that person ranging from Php22 million to Php44 million (depending on the region in the country where he is employed)! And all of this (earnings) potential emanates from a person’s greatest assets, his body and mind. Collectively, I call them his human capital.
Human capital is often abused. People are aware of their future earnings potential. In fact, it is because of this earnings potential that they begin to mortgage their future by enjoying too much now. And this is also why I say that it is typically the lenders who recognize that people are multi-millionaires. After all, why will creditors lend hundreds of thousands and even millions of Pesos to people who do not possess those amounts yet? Lenders ask for evidence of earnings potential in the form of certificates of employment and compensation.
Eventually, people who overly mortgage their future earnings end up overheating their human capital just to pay for past excesses.
Just like any valuable equipment in a factory, human capital also has to have down time for maintenance. The human body and mind must be allowed time to relax, which is why work-life balance is very important.
Human capital also depreciates. The sum total of future earnings will obviously get smaller the closer people are to retirement. It is therefore essential to save and invest a good portion of earnings to allow financial wealth to grow over time and eventually replace human capital.
One last thing, human capital is not exactly linear over the career of a person. If life is all about consumption to a person, human capital will be plotted as a downward sloping curve. On the other hand, human capital can grow exponentially if savings from it are reinvested in the body and mind. This is why healthy living and continuous learning are the best investments that anyone can make.
So, what have you been doing to your human capital lately?
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