Would you sell part of your soul to fund a purchase?

Most people don’t realise that in a lot of cases the best investment they own is themselves.

The main reason is that a person has the ability to generate income every year as long as you remain either self employed or employed.  Despite market fluctuations, for some people this income source is pretty reliable.

I often look up from time to time the incomes of sporting stars.  If you look at the average salary of an AFL sports person they earn around $265k per year however their average career spans only around 4 years. So in reality the average player will be paid around $1,060,000 over their working career.  A lot  of these sporting heroes find post their sporting career that their incomes may not be anywhere close to this levels.

This can be compared to say a person earning $80,000 over their working year and assuming no pay rises will earn around $3,200,000.  Now the comparison is not entirely fair as the sporting star will still earn some income post 4 years but a lot of them will struggle post sport, but it does raise a question do we overlook the obvious and most valuable investment we own?

Part of the problem may be that we often think of an investment as something that generates income or growth without us having to work to do anything. Sometimes we don’t realise when we look at your face in the mirror you might staring in the face of a $3.2 million asset.

The Wall Street Journal reported that College kids could now sell part of their soul for a lump sum payment to help fund their college fees.  So would you do it?

How does this really work? Well a financial institution will provide a college student a lump sum to pay their school fees if they can take between 5-15% of any future earnings that they generate for the next 5-15 years.  They term this type of lending as an “income-share program”.  To view the article click here.

The risk for the lender is that they may never get a job or one which is only at a pretty low income level.  The upside is that they get to look at 10,000 applications over the past few years to pick the best and brightest candidates.  In a lot of cases the companies are earning around 10-15% return on their investments.

Now this article is not about investing in income-share program companies, it is actually about sitting up and thinking about one of your greatest sure bet investments – you!  The most overlooked part of this asset is how you allocate this capital every year.  Every year you spin off cash, but how is it deployed.  As at some point this investment will close up shop and retire.

If you deploy the income correctly over the coming years you can build up a nice retirement future.  Even a bad asset (such as the original textile mill that Warren Buffett  had) can generate rivers of gold.  Now this textile mill “Berkshire Hathaway” in Warren’s eyes was a terrible investment.  It was capital intensive business and yet he was able to redirect the income streams which it produced to build an investment portfolio outside this asset to fund its next chapter after the mill had closed.  

If you think of yourself in the same way, you might be the capital intensive asset you need to eat, sleep and live life, but if you can spin off some extra cash and push this aside, then this capital intensive asset might also provide you with a nice retirement future.

Like all great investment ideas it is important to seek professional advice from an experienced financial planner, and we would recommend the friendly team of advisers at AJ Financial Planning.