Unless you are near retirement or a trust fund baby, the income potential of your career is your greatest asset. The house, cars and investment accounts are golden eggs that wouldn’t exist without the golden goose, your career. Unlike investing in other assets, there isn’t a well known “investing in yourself” rule of thumb to help you make professional development decisions.
How much money should I reinvest in myself? Like any other investment, investing in YOU should take into consideration your time horizon, risk tolerance around the personal achievements important to you, how long you've been in your career, longer term goals and current liabilities.
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Neither investments nor professional development are cookie cutter but 3 percent of your gross salary is a good rule-of-thumb for reinvesting in yourself. If you are running your own business or have ambitious goals for your future it would be much more. Three percent should be the baseline for your professional development whether through books, courses, personalized coaching, new experiences or relationship building.
To put it into perspective, if you make $50,000 per year, then at least $1,500 per year should be put towards professional development. If you can commit to $125 per month for cable, you should have no issue in committing $125 into yourself.
Where does the three percent rule of thumb come from?
Most employers that offer a retirement plan to their employees will match up to 3 percent of the person’s compensation. If the company is giving you 3 percent in “free” retirement money, I believe you can then invest the same match in yourself to boost your income potential.
Inflation over the past 100 years has been a little bit higher than 3 percent. Many companies offer a 3 percent annual raise to their employees for doing nothing more than the same job. Reinvest your cost of living adjustment to help adjust your career trajectory.
If you are investing money with a financial adviser, they normally will be compensated up to 2 percent of the money they are watching for you. If you are paying 1.5 percent for your money to make money, you should be paying 3 percent for your career to make more money for you. Income is the fuel for all other investments.
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The next question is finding the 3 percent on a fixed budget.
Pay your loans, then pay your future. Once student loans are paid off, use that dedicated monthly payment towards professional development. Instead of paying for the education that got you where you are today, put a monthly payment toward new experiences that will get you where you want to go.