What is Wealth?
What is wealth? This word gets thrown around a lot in our society and the financial industry. Ask ten people what wealth is and you might get ten different answers. If wealth seems vague or subjective to you, there is a single truth to consider. Anyone who has honestly obtained wealth, kept it or worked to achieve it; they all follow the same rule.
My definition of wealth is “the acquisition of assets with the potential to grow and contribute to the owner’s quality of life.” Webster says the same thing, but not as eloquently.
Keeping this definition in mind, obtaining wealth depends on our ability to acquire assets that both grow and contribute to our quality of life. This rule might sound simple, yet following it can be more challenging.
Confusion around wealth happens when we mistake the bottom-line number on the net worth statement for wealth. The bottom-line has little to do with real wealth. Wealth is found in the quality of assets held in the net worth statement itself. Let’s consider some examples that seem valuable but could be misleading.
The first would be “idle assets”. These are assets that don’t grow in value, or they do grow in value, but never contribute to your quality of life. A common example would be a large stock position with no income and never gets sold. People hold on to these for a variety of reasons. Maybe there’s sentimental attachment, a fear of selling something that has gained in value, we continue to hold onto hope that it will do well or there may be a tax consequence we want to avoid. If we never sell, these assets will be part of an inheritance. Giving assets to your children is wonderful and should be celebrated, but those assets are not your wealth. It’s theirs.
Another example is a “vampire asset”. These assets can look great for your net worth and might do wonders for your quality of life, but along the way suck your finances dry. A clear example would be a luxury car. Maintenance, insurance and interest will create burdens when it comes to building your wealth. A less obvious example would be your home, which can also be an idle asset. The value of your property might grow, but along the way, maintenance, insurance and interest can cause problems for your cash flow. There’s nothing wrong with owning luxury items if they’re balanced with the rest of your assets. As fun as they are, they’re less likely to help build your wealth.
Now that we’re able to spot some pitfalls, how do we find quality? Start by asking some simple questions. What are you interested in? What are you good at? If there’s a type of asset that excites you, You’re more likely to be thorough with your research. Your focus could be real estate, a stock portfolio, building businesses or just about anything else. The sky is the limit. Wilcox Wealth Management can help qualify acquisitions, coach you through good and difficult times and lead you to true success.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Craig Wilcox is a Registered Representative with and Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.
