At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
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.
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 For instance, the money in a bank account is liquid, but the money in an annuity is not; the bank money may be withdrawn at any time to provide actual money, but the money in the annuity is tied up with the program, making it accessible only through manipulating the annuity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.
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.