2009-08-08

The Best Investment: In Yourself

Warren Buffett once said that the best investment one can make is on him or herself.

I agree.

I sort of always knew that, even before I stopped to do the math. Education is something that no one can take away from you. Knowledge can't be taxed no matter how quickly it compounds in you over time.

The "investment" doesn't necessarily need to be in a formal education or an expensive one. It doesn't necessarily mean going to a top-quality college or getting a PhD in something. Not that a quality education is irrelevant -- it isn't -- but one's education is much better when it's actively wanted and actively sought after. Going to college because "it's the natural next step" or "because I have to" might not be as good an investment as seeking education via other means if the reason is "because I want to" and "because I enjoy learning that".

In other words, it's how you approach education that counts the most, not the source of education itself.

My own personal experience confirms that. Not that my path should be a model for others -- it probably shouldn't as some pieces of my education took too long and weren't as useful as I had hoped. But nonetheless, here's my story.

I've always been a learner. I read whatever I could get a hold of. And I still do. After self-learning how to program computers at the age of 12 (again, because I really enjoyed it), I sought to learn other computer languages and tools. My first "job" was when I was 14. I operated a dBase database at a small business, which I had self-learned because I actively wanted to. I also built a few applications that I sold to third parties. That knowledge was all self-thought and it cost me almost nothing other than a few books and magazines.

In college, I held several part-time jobs. One summer, I had three -- two half-time jobs and one consulting job. They were all learning experiences, and I got paid for them -- education at a negative cost!

When I finished college I had some money saved. It wasn't a big deal, but at the time I believe it was more than what my friends had. It was hard to depart from that hard-earned money, but I did spent almost all of it on a month-long trip to Europe. I note that I earned this money in a weak currency, which I had to convert to expensive British Pounds, German Marks, Swiss Francs, French Francs, etc. There was no Euro back then.

After college, I went to grad school. The rate at which I could earn money initially dropped, since grad school was a full-time job with very low pay (and here "pay" is a nice word to describe grad school stipend). But nonetheless, I managed to work summers and do little things here and there to save a little.

When I finished grad school in 2005, I had an amount X saved. Today, less than 4.5 years later, I have 38X saved, not including my house. That's a 124% annual rate of return!

How was this possible? Well, I did start from a low X, so doubling or tripling that was not as hard as it may seem. Also, a large part of that had to do with luck and timing since some of that came from stock options from my employer.

But even without the stock options and without the salary scale I landed in due to my extra years of graduate studies, I calculate I would still have managed to reach 18X during the same time frame due to the nature of the skills I had developed and actively sought after.

In other words, due to my investment in myself, I got at least a 90% annual rate of return -- much better than any stock market or hedge fund I could have put my X dollars, even if I had kept adding the savings from an average entry-level salary along the way.

Of course, getting an education doesn't imply you need to find a job to get this kind of return. Warren Buffett, Bill Gates and many others educated themselves to become their own bosses.

Nor should you stop learning once you get an initial high rate of return. My own education didn't stop after getting a job. I continue actively seeking to learn useful skills such as how to wisely invest my savings. I'm currently using my job to learn what I can about my field of work. But I'm also learning something very valuable while getting paid to work: through my job, I'm learning how to run a successful business -- one day it might be useful to know that.

Stay focused on your education, make it pay for itself and reinvest the dividends in you know what -- in yourself!

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