What is human capital and how do you protect it well in addition to making investments in your
career to maximize your value it makes a lot of sense to make investments to protect your ability
to grow and maximize your earning potential there are numerous videos and social media articles
on the best ways to produce more leads market more efficiently reduce your debt but I've seen
very few with an emphasis on protecting what you're building for that reason I decided to
produce this video stick around and I'll explain what human capital is and how best to protect it
hey I'm Colin Exelby and I provide financial planning for business owners and their families
that makes sense look young people today and by young, I mean under 35 you can expect to have by
some estimates upwards of 10 different career steps by the time you eventually retire
early in your career you often have a small amount of savings the beginnings of a retirement account
and debt that was acquired from schooling and furnishing an apartment or a home
a traditional balance sheet would show a minimal net worth
however those basic balance sheets don't take into account the biggest financial asset you possess
a 30 plus year stream of labor income often called human capital
an individual who has just completed schooling and is venturing into the workforce should try to
grow and protect that income stream all right for practicality let's look at the following example
an individual graduates from a four-year school at age 22 and achieves the average salary for a
college graduate in 2015. well according to NACE's fall 2015 salary survey that number is $50,651.
it's slightly higher today as we're filming this around 53 but let's just go with this example now
let's assume the individual increases their income by 5 annually let's further assume
that they work until age 67 and their average effective tax bracket during their lifetime is 25
we all know the tax rates are probably going up but let's assume for this example is 25
if we assume a 3 annual rate of inflation the after tax inflation adjusted present value of
their cumulative income is drumroll 2 613 559 dollars holy crap now if you earn more grow
faster or work longer that number's even larger the biggest risk to that individual is a major
accident that dramatically or completely reduces the ability to produce and grow their income
fortunately there is a way for us to protect that future income stream so that you reduce the
risk of bankrupting yourself and your family it's called long-term disability insurance
and it's a product that is designed to replace a significant portion of your future earnings power
this type of insurance should be in place until you permanently decide to stop working
your future labor is often the most lucrative and important asset that you will have your ability
to work grow your skill set and provide a living for yourself and your family should be of primary
importance as a financial advisor i believe every working adult should have long-term disability
insurance that's appropriate to protect the cumulative after-tax value of their future income
however most americans don't in fact according to the social security administration
68 of private sector employees do not have long-term disability insurance and i used to
be one of those it took me a while to think about my future income as a financial asset the more i
invested in myself the larger the present value of that future labor became i began to wonder what if
i had an accident while skiing what if a drunk driver hit my car while coming home from work
what if i caught some debilitating disease one out of every four 20 year olds will become
disabled before they retire wow that's a sobering statistic medical problems were a primary reason
for 62 percent of all personal bankruptcies filed in the great financial crisis of 0708
in my opinion if you're going to invest in growing your future income you should be
willing to protect it from catastrophe insurance isn't to protect against average everyday mishaps
it's to protect against an unforeseen catastrophe and i don't want to think about it but if
an accident happened and i was unable to work and let's be honest i have a sit-down desk job
where i talk to people in front of a computer i really have to be disabled not to be able to work
but if that happened and i didn't have disability insurance ultimately my income and business
would be gone my wife would either have to quit her job to care for me and lose that
income too or we would have to hire help or my elderly parents would have to care for me
each of those scenarios puts stress not only on my immediate family but also my extended family
disability insurance is the one form of insurance that each working adult should have if you'd like
to discuss this topic in more detail as it relates to your financial plan please don't hesitate to
reach out at celestialwm.com if you enjoyed this video make sure to give us a big thumbs up on
youtube if you have any comments or want to ask a question please do so below and make sure you
smash that subscribe button so you're notified whenever i release a new financial planning video