4 Types Of Capital That Create Long-Term Generational Wealth
Are you planning to build long-term generational wealth for your family? I think for most people that is the goal but they only think about in terms of financial capital.
According to financial advisor Max Osbon, there are 4 types of capital you need:
Capital Types #1: Financial Capital.
Financial capital is the value of all of your assets combined. Once you start to accumulate a significant net worth, you should focus on growing it, protecting it and passing it on to your heirs in a tax efficient manner.
Do you invest in assets that generate income without you? In the world of financial assets, you are limited to stocks, bonds, real estate, commodities and currency, cash. Understanding these different investments and the manner in which you invest in them is the key to building financial wealth.
Capital Types #2: Human or Personal Capital.
Who will be responsible and in charge of the family wealth. How can you ensure that your successors treat your financial capital the same way you would…thoughtfully and carefully. Here we are talking about the thinking and actions you take every day that are consistent with your values, desires and beliefs. We create our own world. If you don’t like it, you can absolutely change it to your liking.
Capital Types #3: Intellectual Capital.
This is the playbook for how you and your family will work together to solve problems and address conflict. Part of your intellectual capital often involves business activities that develop assets, many of which do this without your direct daily participation. Building wealth in this area leverage business prosperity and how we invest in ourselves in an asset based way, instead of an income based way. Some look at this as “the business of family.”
Capital Types #4: Social Capital.
What will be your level of civic engagement? True family wealth includes caring for and helping others. I’m sure you’ve seen countless foundations supported or sponsored by wealth families, which enable the greater good in society to grow and prosper. Giving back is very important to those with generational wealth, as it is the right thing to do, plus it moves wealth to organizations doing good, rather than going into government coffers in the form of taxes that will likely be squandered in areas that your beliefs may not support.