It is a perfectly logical calculation to analyze an individual’s
capital value to himself, for an individual worker, with only his
services to sell, _is his own invested capital_.
A man earning $6,000 a year is getting an income which amounts to 6%
interest on $100,000. Therefore it is entirely fair to say that such a
man’s capital value to himself and his family is $100,000. If such a
man realized this, he would undoubtedly take himself more seriously;
and give his own finances the same careful analysis and attention that
a business man does who has $100,000 invested in a business.
The savings a man makes out of his salary--which should be 10% at
least--equals precisely what is the average business man’s hope for the
rate of profit which his business will show. A corporation capitalized
at $100,000 hopes and expects its statement at the end of a year to
show 10% net profit, after taxes, interest, depreciation, etc.
The _individual_ should have the same expectation for himself. He
should not only regard himself as having _failed_ in his business
(as the corporation does, if it shows no profit at the end of a year),
but he should also regard himself as having stood still if he has not
advanced his capital value, which is another way of having raised his
salary or income. It is a splendid stimulation to the saving idea to
thus visualize oneself personally, as though he were a corporation, for
incidentally such a procedure results in giving a man a certain pride in
his own financial analysis, about which by traditional negligence we
have been rather careless. From 30 to 65 years, at a salary average
of $250 a month, a man earns a grand total of $105,000. If one-tenth
of this, as per the standard calculation, is saved, the total is
$10,500, not counting interest. If put into a savings bank at only
4%, compounded, this saving would amount to over twice this sum or
about $23,000. This total saving in 35 years, until the average age of
slackening off in earning power, would produce an annual income at that
time, at 6%, of $1,380. This sum, as can be seen, is quite enough to
insure immunity from real hardships in old age.
Economists tell us that the value of the average life is $5,000.
The value of the very young baby is $180 and a man at the age of 80
actually represents a _liability_ of $1,400. At 20 the average
value is $8,000, but by 50, this value has decreased to $5,800. This is
on the authority of the Life Extension Institute and illustrates the
inexorable and illuminating possibilities of measuring human life on a
capital value scale.
The United States, at the present time, averages in wealth $3,000 per
person, which is actually less than the average value of life.
The annual income of the people of the country is about $545 per
person, or $2,180 per family of four. Nevertheless in 1924 the average
income of 86% of all workers was less than $2,000 per annum, and only
1% of the population earns as much as $8,000 per year. If you want to
figure your own capital value, simply figure out how much what you earn
represents as 6% interest in capital value.
You can attain a larger capital value in three ways: (1) by increasing
your income, (2) by saving and investing, (3) by an insurance plan.
If a man 20 years of age desires to be worth in capital $30,000 at age
65, he can take a $3,000 policy at a cost of $6.00 per month. At 22
years of age, he takes $3,000 more. At 24, $5,000 more; at 26 $5,000
more, and at 28, $5,000 more. This is a total insurance in force of
$21,000. At 65 years of age he then has the face value of his policies,
$21,000, plus dividends of $9,000 or a net total of $30,000. The total
cost of all this, if this plan is followed at the right ages, is less
than $50 a month.
Think of yourself in terms of capital value; capitalize your savings
and save systematically. Trust the rest to the law of compound interest
and the earning power of money judiciously invested, and your financial
future is systematically taken care of.