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Tuesday, May 1, 2018

The Three Wealth Building Assets

As advisors, we have the opportunity to meet people of all walks of life at different points in their journey to prosperity. One of the biggest misconceptions is that “Wealth” is a number on the balance sheet. But what if this net worth was really the output of other, less obvious resources?
Financial wealth does come from somewhere. It comes from the value we provide to the world (our Human Assets), to whom we provide that value (Social Assets), and by making good financial decisions along the way (Capital Assets).  Let’s shed some additional light on these different resources.

Human Assets

We will start with Human Assets.  Be forewarned, they are by far the most “touchy-feely.”  Human Assets include all of our knowledge, skills, and abilities – all the value that we have to offer as individual human beings. Human Assets cannot be taken away, nor given. They belong solely to the individual.
Athletes exemplify Human Assets. Although there are many other factors that impact the career of a track sprinter, at the end of the day the race is won or lost on the skill, ability and determination of the individual.
The development and deployment of Human Assets requires self-awareness and self-discipline. Knowing our past, understanding our strengths and weaknesses, and being able to communicate our values, are key elements in growth.
Why bother? Human Assets are often what determine the trajectory we take personally and professionally. Without self-awareness, building strong relationships (Social Assets) is more difficult. Knowing our strengths, weaknesses and passions help us bring our authentic selves to each of our relationships.
Growing our Human Assets helps us find friends and advocates that share our values. It helps us guide our efforts towards our professional sweet spots where our strengths overlap our motivations.

Social Assets

Social Assets are where we find both opportunities and significance. These are the quality and the quantity of the meaningful relationships we acquire and maintain over the course of our lives. Relationships, by definition, cannot belong to just one individual; they are shared. They ebb and flow.
The career success of politicians (for better or for worse) hinges on their Social Assets. No one can “achieve” elected office without the support of the electorate.
There are two environments where Social Assets are acquired and then deepened.
The Inner Circle. The key feature of the Inner Circle is providing wisdom and support. These are relationships where we can be vulnerable, share our doubts, misgivings, frustrations, and fears. These are the people we give permission to challenge us, hold us accountable, and to open our eyes to blind spots.
The Network. Our Network is the sum of all the various relationships we’ve made over the course of our lives. They are the people that know us, or know of us. Success comes from engaging both our strong ties for their support, and also exploring our weaker ties for new opportunities.
Social Assets are our access to wisdom, judgement, experience, and support outside ourselves. These relationships provide the deepest sources of significance and opportunity in our lives.

Capital Assets

Capital Assets are the traditional measure of “wealth”. These are the various things that we own or possess. They can be businesses, currency, contracts, commodities, and the list goes on. At a very basic level, these are external resources that we can control. For the purpose of our conversation, we will stick to financial assets that can be measured in dollars and cents.
At the risk of being redundant, venture capitalists are an example of exaggerated Capital Assets. These individuals use their wealth to purchase and own other companies. The professional success of a venture capitalist depends on the performance of the capital deployed.
There are too many topics in this category to give full attention to, so we will limit our discussion to the two primary concepts in broadening your Capital Assets: Creation and Utilization.
Creation is the value that you bring the world. It is the translation of your Human Assets (your labor) into Capital Assets. To responsibly develop Capital Assets with integrity, creation of value must be the motivation, opposed to consumption. We will spend time covering how we measure the overall creation of value by using a personal income statement.
Utilization describes how we employ the Capital Assets that we have generated over time. Where accumulation is backward-looking and involves trying to do well, by projecting the past into the future, Utilization is forward looking, anticipating opportunities to create additional value. We keep track of how our Capital Assets are being utilized by the personal balance sheet. 
Capital Assets are the easiest assets to quantify, but also the easiest to lose track of their meaning. Capital Assets are generated by the creation of value, and maintained through Utilization.

Two Cautions

Human, Social, and Capital Assets are resources, and only resources. They are means to cross the river between where we are, and where we want to be.
My first caution to you is never to mistake the means for ends. Human Assets are not ends, nor are Social Assets. And as much as the world would have you believe otherwise, neither are Capital Assets. When we lose sight of our values, our principles, or our faith, we start chasing the wrong things.
The second caution is that the outcomes of developing assets take on the character of the individual. The benefit or loss to society depends on who is using their resources and to what end.
My sincerest wish is to create a means of helping many people make the world a brighter place.

Geoffrey Sadek, CFP®

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.