"Invest in You, Then Your Portfolio: The Financial Strategy for Long-Term Wealth"

Imagine two friends, Alex and Casey, both 25 years old and each earning $75,000 a year. They share similar jobs, similar lifestyles, and even went to the same university. They want to solidify their financial future but they have different approaches on how to do that.?

Casey is what most would consider to be “old-school”. His dad taught him to save aggressively when you’re young so you can build a nice nest egg when you’re older. Work hard and get promoted and everything should work itself out. Sound strategy young fella!?

?Alex however believes that you need to invest more in yourself than traditional investments. She read Cal Newport’s, “Be so Good they can’t ignore you” and she is determined to be a master in her career field. She doesn’t want to go back and get an advanced degree but would rather put money into professional development going to conferences, reading books, taking online courses, and paying for mentors. She elects to contribute 10% of her income to these activities and 10% towards traditional savings vehicles.?

Let's fast forward 10 years into the future. Alex’s focus on professional growth and personal development has allowed her to grow her income by 20% a year.? Her net worth is “only” $356,286 but her starting salary of $75K has ballooned now up to $386,983 annually.

Casey, on the other hand, has stuck with his initial income, growing at a sound rate of 10% a year, while maintaining his 20% savings annually. He has a net worth of $429,914 but an income of $194,530.?

At this point, they start to settle in their career tracks as they start families and hobbies take up more of their time and focus. After the first 10 years of high growth, both of their incomes "only" grow by 5% per year until they retire at the age of 60. Alex still maintains her savings of 10% per year and Casey sticks to his 20%.?

Now they are pretty boring investors so they are just investing in a taxable brokerage account with a low-fee portfolio and historic market returns. They both build up similarly sized estates and are able to retire comfortably at age 60. The critical difference is that Alex has much more discretionary income over the course of her career. Her career earnings exceed Casey's by over $10 million and her spending exceeds his by 2.25x! That's quite a bit of assets you would need to acquire to make up that gap. So accelerating your income when you're young to accrue more assets when you're older gives you more freedom. Here is how the numbers compare.

Being a consistent saver is never a bad idea. However, especially early in your career, when you are not yet earning a high income, investing in yourself can generate a more significant ROI by enhancing your skill set and thereby increasing your earning potential. This will make you more valuable, which lowers the chance that you will experience a layoff which can have significant consequences on your long-term financial situation. You also will typically have more time to invest in courses, certifications or even start a side hustle when you’re younger.?

The value of increasing your earning capacity for the next 10, 15 or 20+ years will provide you more opportunity to afford the things many people have to wait until retirement to experience. In addition, if you aggressively, you will be in the position to be financially independent at an early age.?

In summary, personal development may not be a part of your investment portfolio but the returns you get investing in your skills and future income will pay dividends for years to come.