One way to describe assets is to break them down into categories, and two broad breakdowns are physical and financial capital. Physical capital is a tangible asset that can be touched in a real sense, while financial capital refers to the legal ownership of assets such as physical capital.
Getting Started Human capital. For starters, human capital is simply the skill, knowledge, and experience possessed by an individual or population viewed in terms of their value or cost to an organization or community.
You have certain skills, character attributes, knowledge, and experience, and those are worth a certain amount to your employers and, for that matter, to your friends.
The younger you are, the higher your human capital is as you have more years in the workforce. The more skills you have, the higher your human capital. The more useful knowledge you have, the higher your human capital. You get the idea. Those are two very separate concepts.
Human capital refers more to what others will pay you for the aspects of your life — your working years, your skills — that you can sell to them. On the other hand, financial capital is the sum of all of your assets minus your debts — your net worth, in other words.
Things that benefit your human capital tend to also benefit your financial capital over the very long run. However, these two things also work against each other.
They have an inverse relationship of sorts. Here are a few things you should be thinking about regarding that balance in your own life.
As your life moves forward, your human capital is going to decline strictly due to age. Unless you have a huge increase in other dimensions of human capital — experience, skills, or other things — your human capital will be lower in a few years than it is now. Your goal, right now, should be the opposite.
You should be trying to make things easier for that future version of yourself by reducing the demands on human capital, not increasing them. This is something of a continuing thought from the above principle.
The truth of the matter is that the earlier in life that you invest, the more time you have for your financial capital to grow up to a peak. Why is that good? In fact, you can get away with contributing less each year to it if you start contributing earlier. One thing many people do when they start enjoying the fruits of their human capital is that they ramp up their standard of living.
They buy a fancy car and a beautiful house and all kinds of wonderful things to fill it with. They eat at nice restaurants, wear nice clothes, and have nice gadgets. Remember, your human capital is limited and every single day you drain away a little bit more of it.
So, instead of inflating your lifestyle every time your wages go up, hold back. Keeping Lifestyle Inflation at Bay Building skills, getting certifications, and so on is all about building your human capital, so the earlier you do it, the bigger the long term impact. Today is the day to start working toward building the skills and earning the degrees and certifications you might need to take the next step in your career path, whatever it might be.
The sooner you do it, the bigger the boost you give to your lifelong human capital. The longer you wait, the smaller the boost. It will help you throughout the rest of your life. Your human capital is limited.
What can you do to build it up? And, what can you do to build your financial capital for when that human capital runs out?Capital vs Asset Words like capital and asset are very frequently encountered by accountants and those involved in preparing financial statements of businesses.
These are related concepts because of which sometimes people get confused whether it is capital or an asset that is the correct term to be utilized in the financial statement.
The physical capital maintenance concept is that the physical capital is only maintained if the physical productive or operating capacity, or . Human Capital vs.
Physical Capital Unlike physical capital, which is easy to find on the balance sheet (and in the notes to the balance sheet), . Financial capital, on the other hand, is the legal ownership of all physical capital, as well as the monetary value of any asset that could be liquidated for cash.
In fact, cash on hand is a form of financial capital, but so are stock shares, land titles, and other forms of property ownership. Human Capital Management (HCM) is more than HR with a new name.
HCM is a transformation from human resources to human capital. HCM does not happen by . Human Capital vs. Physical Capital Unlike physical capital, which is easy to find on the balance sheet (and in the notes to the balance sheet), the value of human capital is often assumed.