Your world of wealth is built with four tools— savings, loans, investment and insurance. You have learnt the basics of these personal finance tools and used your knowledge to grow and protect your money. Did you know that you can reuse the same knowledge to grow your career—where you simply invest time instead of money, to create wealth? Let’s apply four financial concepts to your career and check out the consequences of the choices you will mak.

Compounding

Albert Einstein is reputed to have said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” You have applied this principle right from your first savings account through your fixed deposits, provident fund etc. Now learn how to use it at work. The effect of compounding on your career and annual compensation is at least twice or more that of the inflation adjusted market interest rate in any given year. Your career compounding comes from three things—reputation, reliability, relationships. When you demonstrate a consistency in delivering outcomes, you become reliable. Your dealings with people builds relationships.

Your deliverables and network create a reputation. Each of these compounds over months and years, through different roles and jobs. The compound interest gets you a key project, a large customer, a bigger role, a promotion, an increment and a new job many times over. Thus career compounding creates wealth for you faster than financial compounding through say a 25% increment in a year or greater variable pay. Remember, when you break a fixed deposit, you lose the benefits of financial compounding. Similarly, when you switch jobs at short intervals, miss ut on deliverable deadlines, let down personal relationships or commit financial/data fraud, you miss out on or destroy the cumulative compounded benefits of reliability, relationships and reputation.

Net Present Value

NPV or Net Present Value in finance tells you the value of future cash flows relative to current cash flow. Thus you can compare which investment or project is more profitable even though they have different payouts at different times. You can use NPV to evaluate competing career choices and the answers may surprise you. Most employees typically choose a new job based on the immediate salary offered. A smart job-seeker knows that a higher NPV comes from bigger, faster promotions in the future. Thus a job at a startup growing 50% every year will result in a promotion in 12-18 months or in half the time as a job in a large MNC. The annual jump in salary adds up rapidly, resulting in a much higher NPV even with a lower starting salary. Your NPV should factor in other components of your compensation including commissions and ESOPs over a period of 3-5 years to figure out the best career choice at any point of time.

Diversification

Diversification is the method you use to reduce risk to your wealth by investing money in different asset classes. This ensures that even if one or more of your investments underperform, your wealth is balanced out by the others. Apply the principle of diversification to your career. The asset classes in your career include skills that you acquire and the network of people that you develop. If you are in IT and have restricted yourself to that one technology or task, you are at high risk. If you have worked on multiple technologies and with different people over the last three years, you are well placed to handle any sudden change in tech or your employer’s business. Similarly, if your sales experience has been restricted to one product, one geography and one methodology, you will be in a tough spot if your industry hits a speed breaker. To diversify and derisk your career, get out of your comfort zone each year, and volunteer for tasks and projects that will teach you new skills and let you work with different people.

Return on investment

The final and the most important concept is ROI or return on investment. ROI measures the efficiency of a financial investment where the gains from the investment should well exceed the costs. Thus you can choose between assets by comparing their ROI. Apply this concept to your career or job choices. What is the cost that you are paying? Consider the number of hours, the stress of travel, the burden of added responsibility and any other factor that is expensive or painful for you. Now add up the benefits not just in terms of salary but also quality of people, variety of learning, flexibility and freedom at work and the choice of role or project. The only costs and benefits that you should consider are the ones that matter to you. Not what your friends are talking about. For example, if you have a cash crisis at home, then a joining bonus right now may be far more important than ESOPs, flexi-timing and an assured promotion in the future. Alternatively, if you are getting an opportunity with your dream company or role, you do not risk the offer letter by negotiating hard on entry salary/ perks.

5 Keys of job insurance

1. Key account

Like an annual car or health insurance, you can reasonably insure your job for a few months even if your fi rm is struggling. If you are the Account Manager of the biggest/best customer, then your role is safe in the short term. Unless the client terminates your account or asks for your replacement, your job is insured. Keep your client happy.

2. Key rainmaker

If you are in sales, and have consistently clocked the highest numbers in previous quarters, then you will always get a second chance even if your numbers drop for a while. To insure your job when the company or you are underperforming, offer to switch to a lower fi xed salary and a higher commission structure. Be that rainmaker.

3. Keys to office

One of the best insured jobs, is holding the keys to the offi ce—literally or metaphorically. If you are in administration and the offi ce runs on your shoulders or you are in fi nance and have the accounting history on your fi ngertips, then you shall be the last person to be let go if the company goes bankrupt. Be indispensable

4. Key project tech

Which are the key projects for your employer? If you are an ongoing critical contributor to the project - eg. the full stack tech lead or the program manager, then your insurance policy is valid till the life of the project. However, watch out for the changing business priorities for your fi rm. Meanwhile, be a key contributor in your role

5. Key employee award

Did you win the Employee of the Year Award? Or Employee of the Month? The award is a temporary insurance policy for an equal duration if it was given in a public ceremony. Whether the employer or employee temporarily slips up on results, the recently awarded performer is rarely at risk. Be aware that past performance pays you well.

This article was originally published by Devashish Chakravarty, economictimes.indiatimes.com.