Regarding one’s most valued resources, long-term control of access to those resources is wealth. Let’s consider how this functional definition contrasts with less precise definitions. Imagine a couple who is nearing retirement with typical finances for a middle-class baby boomer. They have their own house, but also a huge mortgage on it (owing more than the home is worth). They have a nice car (on a lease that costs them $500/month). They have excellent credit and recently counted $40,000 in credit card debt available. They have a 401k account, a small savings account and also a few debts owed to them: $100,000 in inheritance from the estate of a recently deceased family member, a CD from a bank, a bond from the local school district, plus an annuity from a life insurance company. That sounds pretty good, right? Well, in the 1990s, that may have been great. Today is different. (Note that they do not legally control access to any of their resources; they are quite dependent on other people keeping promises to them.) Let’s contrast it to their neighbors. They are basically debt-free and their credit is horrible because of a medical crisis which resulted in a job loss and bankruptcy several years ago. However, they have over $50,000 of liquidity (cash) in a sheltered trust (tax-exempt) which also protects their indirect ownership of three economy vehicles (owned free and clear). Through another trust (which was set up to avoid probate complications for their descendants), they own two cheap mobile homes in a rural area, one of which they rent to their daughter and one that they use occasionally for vacations. They also pay a modest rent (month-to-month) on a place in the city where they live (a few cities away from their daughter). They also own a steady business with dozens of steady clients, all of whom pay in advance on monthly retainer contracts. Their daughter and 5 other people are employed by their small company. Most of their employees have taken small paycheck advances which they owe back to the company (or else the debts can be taken out of future paychecks). That’s a radically different situation, right? For instance... jrfibonacci.wordpress/2013/06/17/wealth-a-functional-definition-as-global-credit-trends-shift/
Posted on: Mon, 17 Jun 2013 17:32:31 +0000
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