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What Is Personal Wealth?

Cash is one form of personal asset.
Article Details
  • Originally Written By: M. McGee
  • Revised By: Bott
  • Edited By: Lauren Fritsky
  • Last Modified Date: 18 March 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Personal wealth is the total value of a specific person’s assets and possessions; it is often calculated to gain a perspective on a person's financial well-being, to help manage finances, or to determine the amount of an inheritance. In most cases, personal wealth is determined by calculating three areas: first, liquid assets, which are defined as accessible money or anything that may be sold or redeemed for money quickly; second, value of possessions, with possessions being items that cannot be quickly exchanged for money; and last, any debts that are owed. In some legal situations, it may be necessary to contact an attorney or financial advisor to determine a person's wealth, but many people choose to calculate the number themselves. What is and is not personal wealth seems very straightforward, but it can be a surprisingly complicated matter — as when a business is considered an individual by the government. In cases such as this, the assets that belong to the company are technically not personal wealth, even to the company’s owner.

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Liquid Assets

The first portion of wealth is liquid assets. An asset is considered liquid when it is actual money or may be turned into money with no loss or extended time frame. For instance, the money in a bank account is liquid, but the money in an annuity is not; the bank money may be withdrawn at any time to provide actual money, but the money in the annuity is tied up with the program, making it accessible only through manipulating the annuity itself. Other examples of liquid assets may include tax refund money or trust funds, on the condition that the money from either option is quickly available without any charges or fees.

Value of Possessions

The value of the individual’s possessions is the next main aspect of personal wealth; in many ways, this is the value of non-liquid assets. This category is filled with items of value that may not be turned into actual money quickly, known as nonliquid or illiquid assets. Some examples include antiques, cars, or long-term investments; depending on the situation, real estate may be considered either liquid or illiquid. The value of a personal possession is defined as the price the owner would need to pay to replace that item at any given time; often, this value receives a percentage-based reduction after it is tallied, in order to represent the penalty for quickly converting non-liquid assets to money.

Debts

The last major aspect of personal wealth is debts, both those owed to the person and those the person owes to others. When a person owes money, that amount is deducted from his wealth; if people owe the individual money, then it is added to his wealth. Generally, a debt receives a percentage-based modification as well, representing the time and effort of paying or collecting the debt.

Debts are often used as a way of fudging wealth totals since they are very easy to set up. If a person wants to hide money or make it seem like he has more than he actually does, it is easy to move a large sum of liquid assets before the wealth assessment and then move it back after; the transfers would show as debts to or from others. This is a common way of low-balling a business’s value for tax purposes.

Person Versus Business

This first aspect of personal wealth is what is and is not a person. A single human is a person, regardless of the situation, and anything of value that directly belongs to him is considered personal wealth. This line begins to blur when a business owns items. Certain business types, most notably corporations, are considered people by the government. These businesses own their own property, and that may not be included directly in any other individual’s wealth. Oftentimes this distinction is misunderstood or ignored, which may cause difficulty when trying to calculate a person's wealth.

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Discuss this Article

anon285426
Post 3

Here's an old saying from my folks' day, more than 100 years ago: "Those that got, gets."

sneakers41
Post 2

@Mutsy - That sounds great but I am always leery of wealth management advisors. There have been too many stories of people losing their live savings for my taste. I am sure that there are a lot of great advisors out there, but I just not that trusting.

I also think that financial management has a lot to do with how someone maintains their wealth. I think that people that live below their means will always have money, while people that always want the latest and greatest toys and status symbols will not.

I think that building wealth comes from a discipline of delayed gratification. If a person could hold off today for a better future they would instantly see things the way that a wealthy person does. I was reading a book about how millionaires think and it said that they are conservative with their spending and like to accumulate income building assets like dividend yielding stocks or real estate.

The book also said that they usually won’t pay more than $40,000 for a car and will usually drive the same car for years after it is paid off.

mutsy
Post 1

I wanted to add that a lot of banks have a wealth management advisor in order to keep the wealthy customer from going elsewhere to invest their money. It sort of is like private banking in which the customer has a personal banker that handles all of their financial affairs.

For example, at my sister’s bank, customers that have at least $100,000 in deposits or $500,000 in a mortgage qualify for premier status. These customers get assistance with investment management, setting up wills and trusts along with business succession plans. Since the bank is international in scope they also offer services for this clientele to open accounts overseas and even offer mortgages for foreign properties.

They will automatically assigned a wealth manager if the customer is banking at one of their overseas banks. They really go out of their way to please these customers.

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