Definition of Wealth
“Wealth” means having an abundance of something desirable. This can be tangible, like money and property, or intangible, like good health or freedom.
Just because something does not have a monetary value does not mean it is worthless. Having strong connections with friends and family is often considered a major component of wealth – since these things cannot be bought or sold, they are “intangible”. Companies also have intangible wealth. For example, if the public opinion is generally positive, this is an asset the company has even though it might not be possible to assign a specific dollar value to that goodwill.
If you can buy and sell something, then it has a tangible value (meaning “can be obtained”). Tangible wealth includes things like cash, bank deposits, property, stocks, and bonds.
Monetary VS Non-Monetary Assets
When you are building wealth, you want to start building up your assets, both monetary and non-monetary.
Your “Monetary” assets are the ones that will be part of your spending plan – how much cash you have in the bank, how much income you are going to get next month, and how much money you currently have in your emergency fund. Since we can spend these funds on a very short notice, they are also called “Liquid Assets”. Stocks and bonds, which are less liquid, are also considered “monetary assets” because you will almost always know their exact value in dollars.
Your “Non-Monetary Assets” are less liquid – you usually cannot spend them directly, and it takes time to convert them into cash. This includes things like property, furniture, machines, and vehicles. All of these items are useful and definitely have some value, but until you actually need to sell them you might not know exactly how much they are worth.
Both monetary and non-monetary assets are used to determine your total wealth. For most individuals, the biggest portion of their total wealth will come from non-monetary assets such as cars, a home, and property.
The idea of “building wealth” refers to investing in tangible assets. This includes financial steps to have cash reserves in bank accounts, investing in stocks, purchasing bonds, and buying property. Building your wealth should occur throughout your lifetime as you learn to spend wisely, save regularly, and invest carefully. These habits will allow you to “put your money to work” for you.
Setting and keeping financial goals is key to building wealth. For example, you might set a goal to save $300 for your first stock purchase. You would first need to review your spending plan and identify areas where you could trim spending. Those extra dollars could then be allocated to your savings goal. Each month, as you followed your spending plan, you’d be able to see how close to your goal you were getting.
Setting goals provides an incentive to maintain control of your spending, and reaching those goals will help you build your wealth.