I can’t seem to fully understand this concept of finance.
Thank you in advance.
In: Economics
Earning potential is an estimate of what a person might be able to earn in the future. It’s based on all sorts of different things and might vary quite a bit depending on what sector someone is in and who’s estimating, but it can be a useful ballpark.
For example, when someone is deciding on what degree to take part of what they should probably do is think about what kind of jobs they will be able to get afterwards. If they decide on medicine they have a bigger earning potential than if they decide on nursing, because the maximum income for a doctor is higher than the maximum income for a nurse.
Other factors to consider are personal connections, country of residence, sadly gender and race, qualifications and where qualifications were gained, current market trends… There’s lots involved.
Let’s say you can pick up a nice job out of high school making 40k a year flipping burgers. You work hard and make your way up to management after a decade or so and get to 80k a year. Your earning potential in this position doubled, but without further education you don’t have much more room to grow.
Instead of hopping to a job immediately, you get a bachelor’s degree after 4 years of schooling and immediately move into that same burger job. After 3 years of making that 40k a year or so, you can move manager, seeing as you have the experience and the degree to impress the bosses. After another 4 years or so to regional manager etc, making 125k a year.
So by forgoing those first 4 years of work to go to school, you end up approximately 160k behind, plus the additional tuition costs. But because your degree increases your EARNING Potential, aka your ability to move up the corporate ladder, you will make significantly more over your life time by sacrificing early years for more prosperous later years eg. Moving up to regional manager vs store manager, or 125k vs 80k. If you stay at those respective positions for 10 years after you get them, you will have made an additional 400k just by going to school first.
Latest Answers