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What Is Wealth?

What Is Wealth?

By Amanda Page  Updated on December 30, 2021

Wealth is an individual’s or household’s net worth, which consists of assets such as money in savings and investment accounts minus debts like loans and mortgages.

Definition and Examples of Wealth

Wealth is often regarded as household net worth, which is the total value of assets minus any debt (“liabilities”). Therefore, if an individual or household owns an asset, then they have the potential for wealth, depending on the size of their debt, and their own perception of how much money it takes to be “wealthy.”

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“You can value wealth in many different ways,” Matthew Ricks, a certified financial planner and president of Haystack Financial Planning, told The Balance by email. “For some, it’s being free of a mortgage. [Others] will say it takes owning $1 million. Some say multi-millions. It’s so individual.”

Ricks went on to note that income and wealth are not the same things; just because you earn a lot of money doesn’t mean you’re wealthy.

“Look at all the singers and athletes who go bankrupt,” Ricks said. “They made a lot and then spent even more.”

Note

There is subjectivity in how individuals define “wealth.” For instance, in a survey of 1,000 Americans, brokerage firm Charles Schwab learned that most believe an average of $1.9 million in personal net worth is necessary to be considered “wealthy” in 2021, but the previous year’s respondents said “wealthy” was $2.6 million in net worth.1

How Wealth Works

In most cases, wealth is inherited or self-made. To develop wealth, you must first define what wealth means to you. Once you’re aware of your own definitions, you can begin to gather information and make a plan to build wealth.

“You really have to think about what you want out of it,” Ricks said. “Do you want to work specific hours or make [a] specific [amount of] money? Do you want to own a successful business or have the freedom to buy time?”

To begin building wealth, it helps to calculate your net worth: Subtract your assets from your debt. You can then develop a wealth plan, which has key components that include saving, investing, paying down debt, and protecting the assets you accumulate.

To continue reading, please go to the original article here:

https://www.thebalancemoney.com/what-is-wealth-5203683

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