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What is an Earning Potential?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 September 2016
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Earning potential is a term that is often used in two types of applications. As it relates to investments, earning potential has to do with the amount of return that a given security can reasonably be anticipated to produce within a specified period of time. The term is also often used to identify the amount of money that an individual can earn from a specific business transaction or throughout his or her years as a member of the work force.

In terms of choosing investments, assessing earning potential is very important to investors. The process involves understanding the history of that investment and which factors occurred that led to the current value of that particular security. As part of the evaluation process, an investor will consider upcoming events or trends that are likely to influence the future movement of that security’s unit price, and determine if the potential return over the short-term or long-term is sufficient to merit buying or selling that asset. Once the investor has a good idea of the earning potential associated with that security, it is much easier to make an informed decision on how to proceed.

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Earning potential is often an important consideration when choosing to enter a particular career field, or to accept a specific work position within that field. Individuals often look closely at how much can be earned over the years, determining if the monetary return is sufficient to justify whatever liabilities that may be associated with a given career path. Along with the desire for personal fulfillment within a career, the earning potential is often one of the factors that can either convince or dissuade an individual from choosing pursue a particular career or job option.

As part of preparing to increase earning potential throughout a lifetime, educators will often counsel students to obtain degrees or technical training that increase earning potential. Individuals who hold specialized degrees in certain areas are more likely to earn more during their lifetimes than those who do not choose to continue their education by enrolling at a college or university and successfully completing a degree program. In like manner, people who successfully secure training at a technical school are likely to earn more over the years than people who do not seek any type of training above the high school level. Today, participation in continuing education opportunities throughout the working years is also seen as a means of increasing value to employers and thus increasing earning potential.

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NathanG
Post 4

@David09 - I don’t know, a lot of people have been hit hard in their 401k portfolios. There is no sure thing. I suppose diversification is the way to ensure that your investments continue to pay well in the long run.

But as to your point about career not mattering so much, I don’t agree. The fact is, the higher your job salary, the more money you can put away towards your retirement fund. So salary earning potential is everything in my opinion.

David09
Post 3

@nony - Well, if you make smart investments you won’t have to worry about career salary potential. You’ll never get rich working for someone else anyway.

The only way to retire comfortably is to make investments in stocks, bonds and gold in my opinion, over the course of your lifetime. Stocks generally return at least 7% annually, which is pretty good considering the dismal returns you get with money market funds and savings accounts.

Start putting away money in your employer’s 401k when you’re still young, and you’ll have a nice nest egg waiting for you when you retire (in theory anyway).

nony
Post 2

@hamje32 - Whatever happened to the saying “Do what you love and the money will follow?” I still think that holds true in a lot of cases, but I agree, times have changed.

I read once where universities were lamenting the fact that there were fewer and fewer kids majoring in the liberal arts. Everyone wants to be an engineer or programmer. I don’t think that’s a bad thing, but I think it’s only good if that’s what you really want, not just something you choose for money.

Otherwise, you’ll lack staying power, and your earning potential will be greatly diminished.

hamje32
Post 1

I’m afraid I have to agree with the general advice of this article. If you want to maximize your earning potential, your best bet is to major in something technical.

I speak from experience, not as someone who did the right thing, but who did the wrong thing. I majored in English, which I don’t regret for its own sake; I enjoyed literature and it improved my writing skills.

However, it didn’t help me in the job market when I graduated. Most of the jobs for English majors were on the low end of the pay scale for starting salaries. Over time, I “went back to school,” picking up technical skills and then transitioning to work in Information Technology.

It has been a much more lucrative career choice.

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