Financial independence – it’s the dream, right? But how do you even get started when everything seems shrouded in mystery? Well, the first step is about understanding your financial worth. That’s where the Human Life Value (HLV) comes in. Let’s demystify this concept and unlock its potential for your future!
The Context
Life is what happens when you’re busy making other plans — John Lennon
Human life is seen as priceless; as they say. No amount of cash or material possessions can replace a human life.
Some economists, however, have a small disagreement with this assertion. They think it would be acceptable to regard human life as precious but not priceless.
Statistical Value Of Life (VSL)
The idea of valuing human life can feel daunting, like a question without a single answer. It’s true, there’s no universally agreed-upon definition. But the choices we make every day, from crossing the street to eating sugary snacks, offer clues about how we, as individuals, view our own worth.
Sometimes, these choices seem to contradict how much we value ourselves. Engaging in risky behaviors like excessive speed, substance abuse, or unhealthy habits might put us in harm’s way. This apparent disconnect has drawn economists to the world of data, hoping numbers can shed light on this complex issue.
Enter the Statistical Value of Life (VSL). It’s not about coldly assigning a price tag to individuals, but rather understanding how much someone is willing to “pay” (in terms of risk) to avoid death. This seemingly impersonal metric finds surprising applications in various fields, from healthcare to environmental protection, by comparing the costs and benefits of life-affecting decisions.
While the VSL sounds abstract, it’s a powerful tool for understanding how society values human life in practical terms. Analyzing statistical models helps us see the trade-offs we make and their collective impact. Importantly, the VSL isn’t a fixed number. Age, job, and location all influence it.
The VSL Experiments
While some might be surprised, researchers dive into “valuing” human life beyond traditional stocks and firms. Studies explore this complex issue through various models, but it’s crucial to remember the limitations and ethical concerns involved.
One example, the “Superb Person Atomizing Machine” (SPAM), breaks down the human body into its parts, potentially valuing an average person at $160 in materials. However, this approach ignores the inherent worth beyond physical matter.
Similarly, studies analyzing the black market value of organs raise ethical concerns. Assigning a $45 million price tag based on nationality (e.g., an American kidney at $262,900 compared to an Indian kidney at $15,000) highlights the dangers of reducing human life to monetary value.
While various estimates exist, it’s vital to acknowledge the limitations of such studies. The true value of human life resides in its immeasurable qualities, experiences, and impact, far exceeding any materialistic calculation.
What defines financial freedom – a mere $160 or a substantial $45 million? Beyond intriguing scientific discoveries, there’s a captivating human tale. The insurance sector, relying on intricate math for centuries, navigates risk, offering insights into the genuine value of a person’s life.
Human Life Value (HLV)
The Amicable Society for a Perpetual Assurance Office, founded in 1706 by William Talbot and Sir Thomas Allen, played a pivotal role in initiating life insurance. Solomon S. Huebner acknowledged as the insurance pioneer, later introduced the concept of Human Life Value (HLV) to assess insurance value and necessity.
HLV represents the total present value of an individual’s future earnings until retirement, estimating the potential financial loss a family might face if the earner passes away prematurely. For those with fixed incomes and retail investors, understanding HLV is crucial as it guides decisions on balancing life pursuits and financial endeavors.
Essentially, HLV signifies the cost of one’s freedom – a singular payment enabling an individual to cease working while maintaining their lifestyle and meeting financial obligations. Reputable insurance websites provide accurate HLV calculators HLV calculators, but caution is advised against those prioritizing lead generation over precise estimates.
HLV Calculation Explained
Let’s consider a simplified example of Human Life Value (HLV) calculation in Indian rupees.
1. Initial Annual Income: ₹500,000
2. Annual Increment Rate: 10%
3. Years Until Retirement: 30 years
Calculation:
Year 1:
- Income = ₹500,000
- Increment = 10% of ₹500,000 = ₹50,000
- Total Income = ₹500,000 + ₹50,000 = ₹550,000
Year 2:
- Income = ₹550,000
- Increment = 10% of ₹550,000 = ₹55,000
- Total Income = ₹550,000 + ₹55,000 = ₹605,000
Now, consider opening your Excel workbook and replicating this calculation sequence for each year until your retirement.
Year 30:
- Income = (Previous Year’s Total) + 10% Increment
- Increment = 10% of (Previous Year’s Total Income)
- Total Income = (Previous Year’s Total Income) + Increment
After 30 years, the estimated Human Life Value (HLV) is approximately ₹24,291,281. This accounts for the cumulative effect of the annual 10% salary increment over the specified period.
While this computation considers basic factors, you can enhance it by incorporating more practical elements like bonuses, footfalls, insurance premiums, etc., for a more refined adjustment to your Human Life Value (HLV).
The Perpetual Rat Race
In the pursuit of financial freedom, it’s essential to steer clear of pursuing elusive targets and grasp your human financial value or worth. Imagine knowing the precise value of your future self, accounting for raises, bonuses, and salaries – having a fixed goal to confidently pursue and achieve.
Many feel trapped on a hamster wheel, working tirelessly until retirement, when this target is absent. Without a clear understanding of the money needed for financial independence, the thought of stopping work might never cross your mind, and you’ll continue to toil like a hamster on a wheel.
Besides, relying solely on active income from work means that income will end once the work stops.
Breaking free from this cycle involves building a portfolio of assets generating passive income that works along with your active income. Understanding your human financial value is thus crucial in determining your worth.
By concentrating on creating cash flows that sustain your lifestyle indefinitely, you can achieve financial freedom and break free from the perpetual work cycle.
Prioritize your HLV (human financial value) as the basic step and commence building a sustainable passive income strategy today.
How To Cease Control?
Creating a fund to sustain living expenses indefinitely is a formidable challenge for many individuals, especially those from middle-class or lower-class backgrounds with slim chances of receiving substantial inheritances.
Without venturing into entrepreneurship or successful investing, some may face a lifelong struggle, barely making ends meet or aspiring for more. To break free from this cycle, seizing control of your financial future is crucial, involving a unique perspective and mental composure – something we aim to help our readers cultivate.
Crafting a robust financial plan and investing in a diverse range of assets are key steps to kickstart the creation of your fund. However, this process demands discipline, patience, and a long-term mindset.
Staying dedicatedly focused on your goals and avoiding the temptations of short-term market fluctuations or get-rich-quick schemes is paramount. Embracing a steady, long-term approach and adhering to your plan can lead to the development of a fund ensuring financial security for years ahead.
Conclusion
This article aims not to dishearten but to foster an understanding of reality and life’s true meaning. Many individuals are caught in the “Rat Race,” where the target is elusive. Making efforts to understand your true worth is hence crucial for liberation. Once you acknowledge this omission, a solution will naturally emerge.
In the words of Henry David Thoreau, “The price of anything is the amount of life you exchange for it.”
We hope this piece prompts reflection and invites you to more insightful readings in the future.
Frequently Asked Questions (FAQs)
1. What is Human Life Value (HLV), and why is it crucial in the pursuit of financial independence?
HLV represents the total present value of an individual’s future earnings until retirement, estimating the potential financial loss a family might face if the earner passes away prematurely. Understanding HLV is essential for balancing life pursuits and financial endeavors.
2. How does the Statistical Value of Life (VSL) contribute to the understanding of human worth in financial terms?
VSL helps analyze how much someone is willing to “pay” (in terms of risk) to avoid death, offering practical insights into the value society places on human life. It is a powerful tool with applications in healthcare, environmental protection, and life-affecting decisions.
3. Can you explain the process of calculating Human Life Value (HLV) with a practical example?
Take a look at the calculations mentioned earlier, specifically focusing on the part that includes your starting yearly income, the yearly increase rate, and the number of years until retirement. These calculations are designed to assist you in estimating the monetary worth of your future earnings as time progresses.
4. Why is understanding one’s HLV important for breaking free from the perpetual work cycle and achieving financial freedom?
Knowing the precise value of one’s future self, accounting for raises, bonuses, and salaries, allows individuals to set a clear goal for financial independence. It helps in creating cash flows that sustain a lifestyle indefinitely, breaking free from the perpetual work cycle.
5. How can individuals seize control of their financial future and achieve financial security?
Seizing control involves crafting a robust financial plan, investing in a diverse range of assets, and staying dedicatedly focused on long-term goals. Avoiding short-term market fluctuations and get-rich-quick schemes is paramount for building a fund and ensuring financial security for years ahead.
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2 Comments
Great article. A quick browse on previous blog posts I see a lot of value that you are sharing. Thanks.
We are glad to know that. Appreciate the support.