Writing this blog has taught me a lot about personal finance and investing. This is one of a series of articles where I argue with my former self by disagreeing with one of my previous articles. Unlike politicians, I’m allowed to change my mind as I learn more from my readers and my own research. In a post about human capital , which is the present value of your future earnings, I said “Human capital is definitely a worthwhile concept in personal financial decisions.” Back then my only real criticism was that human capital should take into account the cost of your basic needs for food, clothing, and shelter. With this caveat, I believed that taking human capital into account when making financial decisions was sensible. I’m much less positive about this idea now. I think that for most people, there is great uncertainty in the total of future income. It’s easy to look back at your life and decide that your career was inevitable, but I doubt you thought this when you were young...

The concept of human capital is an interesting one. A young person may have no significant assets other than the potential to earn money over his or her lifetime. This potential is called human capital. Over time, we turn our human capital into actual assets. Moshe Milevsky does a good job explaining the idea of human capital in his book, Your Money Milestones . He gets his students to create a personal balance sheet. The first versions they produce are usually depressing; they are full of student loans and few assets. Then he teaches them about human capital. They work out their expected income over their working lives and add that to the balance sheet. Presto! Now they are millionaires. Human capital is definitely a worthwhile concept in personal financial decisions. However, it is misleading to include future income without considering future needs. We all need water, food, clothing, and shelter. Even the most basic versions of these things have a cost. Nobody wants...