What is Wealth?
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for financial transactions. At general level, economists may define wealth as "the total of anything of value" that captures both the subjective nature of the idea and the idea that it is not a fixed or static concept. Various definitions and concepts of wealth have been asserted by various individuals and in different contexts. Defining wealth can be a normative process with various ethical implications, since often wealth maximization is seen as a goal or is thought to be a normative principle of its own. Wealth is a store of value. In other words, wealth is something that you can enjoy in the future or that can be used to pay future expenses.
Wealth can be categorized into 3 categories:
1. Personal property, including homes or automobiles;
2. Monetary savings, such as the accumulation of past income; and
3. The capital wealth of income producing assets, including Real Estate, Stocks & Securities, Bonds, and Businesses.
Wealth can be also sub-categorized as:
a) Commodities: A basic good that can be sold at market. Precious commodities such as gold and silver are a common way to store wealth.
b) Ownership of Business: Organizations that provide goods and/or services that have value and/or capacity to generate profits.
c) Securities: A tradable financial asset such as a stock that represents a share in a business or entity.
d) Tangible Assets: Any physical thing that has value to a business or individual such as the inventory of a manufacturing firm.
e) Intangible Assets: Assets that can't be touched such as software, data and brand equity.
f) Intellectual Property: Valuable inventions, symbols or creative works such as a trade secret, copyright, patent or trademark.
g) Human Capital: The ability of a person to produce future value like talent, education and cultural capital can be viewed as a form of wealth.
h) Social Capital: Social relations that can generate future value such as business with many loyal customers including contacts.
i) Culture Capital: Cultural elements as well known traditional festivals that generate tourism for a city or priceless work of art. It’s an array of knowledge, skills, strengths and experiences that are learned and shared. The values and behaviors that are nurtured through culture work together to create a way of knowing and being. It could be aspirational, linguistic, familial, social, navigational, and. resistance.
j) Real Estate: Property and structures such as buildings. There are 5 main categories of real estate such as residential, commercial, industrial, raw land, and special use such as FSI
Types of Wealth
1. Money (financial wealth)
3. Status (social wealth)
5. Freedom (time wealth)
6. Health (physical wealth)
It is important not to live a life where you are rich in money but poor in other things that matter more. Money is simply a tool to give you the resources to buy yourself the time to spend with the things and people you really love. A diversified life is a happy life. Success is waking up every morning and spending it with the people you love, doing what you want to do in good health, and being exactly where you want to be. Money can’t make you happy but it can free you up to pursue happiness. True wealth is not just money; it is just one thing on your own personal top list to pursue. Following are wealth in the form of Capitals:
a) Self (Human Capital): Confident, self-assured, intellectually engaged, intellectual capital, resilient, productive and happy members of your family.
b) Relationships (Social Capital): Feeling connected, sharing your dreams, finding partners, engaging in your communities, finding solutions, overcoming challenges and making a difference are much more apt to happen with a strong network of quality relationships.
c) Values (Cultural Capital): This may be the most difficult type of wealth to define, build and nurture, but it’s the most rewarding and enduring. It brings family members together to be a family.
d) Money (Financial Capital): The most typical, but also the most narrow, definition of wealth is financial capital –the family’s bottom line.
Forms of Wealth
When we say “wealth”, what immediately comes to mind? Money of course! In fact, the word "wealth" comes from "the condition of being well". Over the years, we asked many people what increases their well-being and found out that wealth isn’t as simple as money, but exists in so many forms. How can you start investing to build these forms of wealth in your life today?
1. Financial Capital: Our society focuses a lot of attention on financial capital as it is our primary tool for exchanging goods and services with others. Financial capital is more than just money, but also investments that are traded on financial markets. When you invest money in a company, you are giving it “fuel” to achieve its potential, and if all goes well, some of that potential is returned to you, financially. This requires the foresight to understand what businesses will create value and grow in the long term. While money is important, our generation faces unprecedented financial uncertainty that is also causing environmental and social instability. We can no longer rely on building our security and wealth based solely on financial capital. 2. Material Capital: Material capital is just what it sounds like: non-living physical resources. From raw materials like stone, metal, and fossil fuels, to infrastructure like our buildings and roads, to manufactured things like our computer and our clothes, material capital is a common way we measure our wealth because we can see it and we can count it. We invest in material capital by investing in tools that increase our productivity or performance (books, laptops, warm clothes), that last and give value over a long time (good roads, solid shoes), and that preserve the environment (reusable glass bottles), rather than buying things with a throwaway mindset. 3. Wisdom Capital: Wisdom can’t be bought, but it can be accumulated through the application of experience and knowledge. Going to school and reading a book will give us knowledge but no wisdom. Investing in wisdom capital is about using our knowledge and experience to achieve mastery, so we can create more value for others with more insight and excellence. Visiting a foreign country, learning a new skill and practicing the skill amongst professionals, or teaching something that you already know all build wisdom. In the words of Dave Matthews: “You don’t have to be old to be wise, a bird doesn’t wait till he dies to fly.” 4. Nature Capital: From the Earth we come, and to the Earth we return, and in between, the Earth sustains us. It sustains us with water and food we consume, the air we breathe, and the environment around us Nature capital represents our water and our soil, the plants and animals, and ultimately the health of us and our planet. In a consumer-culture, many of our actions are about extraction (meaning we take a lot from the environment). The opposite is regeneration (meaning we give back to the environment), and there are more people now starting to grow their own food and reduce their carbon footprint. One simple way to start investing in nature capital is to choose foods that are healthy even though they may not be as tasty - we can't do a lot in life, if we do not have our health! 5. Spiritual Capital: Spiritual capital means many different things to different people. For some, it comes from a practice of religion, and for others, it comes from a connection of self to a larger purpose - through being in nature, dance, or art! Regardless of practice, spiritual capital guides our values, gives us passion, and cultivates a level of mental and emotional resilience and peace when times are tough. Investing in spiritual capital is about deepening our practice and being of service to others. 6. Social Capital: All the happiness research has found that the number one key to happiness is the quality of our relationships. When we have social capital, we develop influence and connections among people that we can trust. Investing in social capital is not about having more friends on Facebook or followers on Snapchat or Instagram, but about building deep ties by being there for our friends and helping our community. 7. Time Capital: There is something that we all have in common, whether you are a student, Justin Bieber, or the president of the United States - and that is, we all have 24 hours a day. How we use it makes all the difference. Investing in building time capital is not only about having MORE time to do what is important to us, but more crucially, the quality of time we spend on those important things. Take for example a couple going on a dinner date, but are both glued to their phones and not talking to each other. While they are spending time with each other, their attention is not present with each other. The currency of time is our attention. And what we put our attention on shapes our reality.
This can be further sub-categorised as:
a) Inner wealth: Having a positive mental attitude is a type of wealth. Positive people with positive outlook of the world can be happy. Have a positive mental attitude. With positive attitude, life appears to be positive. Inner wealth really helps.
b) Physical wealth: Health is wealth! A person who is not healthy cannot enjoy life. If you want to learn importance of wealth, ask someone who is not feeling well.
c) Family wealth: Do you have loving parents or a caring brother or sister or friends who can come to your help at any time you want? Family and friends are another form of wealth.
d) Career wealth: When we reach at the top of our career, we feel a sense of fulfilment. This is another type of wealth.
e) Economic wealth: Money is not the only important thing in life but it is one of the important things and hence, it is needed. Someone said “The more I have, the more I can give”. So, earn more to give more.
f) Adventure wealth: We feel happy when we visit new place or meet new exciting people. We feel happy when we are able to take a challenge and deliver more than expectation. Adventure is another form of wealth.
g) Impact wealth: What is our mission in life? What is the impact we can make on our environment? Can we do something to improve life of people who need our support or help? People who have impact around their environment show that they have ‘impact’ wealth.
So, next time, think that you are wealthy when you have inner wealth. When you have a caring family or caring friends or when you are healthy or when you progress in your career – you are wealthy! Think and thank!
Stages Of wealth:
1. Accumulation (your working years) As you work toward future milestones, your investments should be positioned to help support your long-term goals
2. Preservation (nearing retirement)
3. Distribution (retirement)
CA Harshad Shah, Mumbai (email@example.com)