What Is Wealth? 4 Types of Wealth
Key Points – What Is Wealth? 4 Types of Wealth
- Defining Financial, Social, Time, and Health as the Sources of Wealth
- Your Wealth Isn’t All About Your Money
- What Is Wealth and What Does It Mean to You?
- 12 Minutes to Read | 23 Minutes to Watch
What Is Wealth? … There’s More to It Than You Might Think
When a lot of people think about wealth, they tend to think it’s all about money. People can be so focused on how much money they have. They look at how wealthy people like Warren Buffett and Elon Musk are.
But there’s much more to answering the question in the title of our article. Dean Barber and Bud Kasper are going to define the four types of wealth to thoroughly answer the question, “What is wealth?” on America’s Wealth Management Show.
What’s the Definition of Being Wealthy?
How much money you have is one definition of wealth. How much money do you think you need to have to consider yourself as wealthy when you’re thinking of wealth from that perspective? Is it $500,000? Is it $5 million? What’s the definition of wealthy?
“Everybody will associate ‘What is wealth?’ with dollars and cents and the accumulation of monetary wealth over time. That is a component of wealth, but I would hate to go through the rest of my life thinking that if I didn’t have that much money that my life would be in a very dismal situation.” – Bud Kasper
What Dean Learned About Wealth from His Grandfather
Many Modern Wealth Management clients know that Dean started Barber Financial Group because of what he saw his grandfather go through late in life. His grandfather anticipated that he would pass away in his mid to late 70s, but went on to live a decade longer, and therefore ran out of money in retirement. He and Dean’s grandmother then ended up having to move in with Dean’s mom. Dean is passionate about helping people with comprehensive financial planning so that the same thing that happened to his grandfather doesn’t happen to anyone else.
“My grandfather didn’t have a lot of money, but he lived a very wealthy life. Why? Because it was all about family for him. It wasn’t about taking big trips, living in a big house, or buying new cars. His wealth was all designed as time wealth and spending time with the people he cared about. From a financial perspective, my grandparents didn’t do a good job of saving enough, but my grandfather didn’t earn a lot when he was younger either. To him, that wasn’t the most important thing.” – Dean Barber
What Social Security Says About How Life Expectancy Has Changed
The people from Dean’s grandparents’ generation didn’t plan on living long. Think about the history of Social Security for a minute. When Franklin D. Roosevelt signed the Social Security Act in 1935, life expectancy was 62. And at that time, people could claim Social Security at 65, so they were thrilled to still be living to do that. Now, life expectancy is 76.4.
When you’re planning for retirement, you shouldn’t just assume that you’ll live to 76. There are many different factors to consider with life expectancy, but we oftentimes put a life expectancy of 90-plus when building someone’s plan. Why? Like we said, we don’t want someone to live 10-15 years or more past their life expectancy and suddenly have no money.
The Four Types of Wealth
So, we’ve talked a little bit about financial wealth. We’re also going to discuss social, time, and health wealth. Your financial wealth is your money. Your social wealth is your status. Then, you have your time wealth, which is quality time with loved ones, doing things you love, and achieving goals. And then you have your health wealth. Without your health, you’re not going to be able to enjoy the things you want to do.
“You need to be conscience of all those things as you create your financial plan. As you get into your 40s and 50s, you really start thinking about what you’re going to do for the rest of your life. It’s almost like a light switch goes on at age 50 where people realize they need to start paying attention to what’s going.” – Dean Barber
The most difficult part of planning for retirement for a lot of people is knowing where to start. We have a resource for you to help with that in our Retirement Plan Checklist. It consists of 30 yes-or-no questions and age-and date-based timelines that gauge your retirement readiness. Download your copy below!
A Legacy of Memories
When Bud is asked, “What is wealth?” he immediately thinks of a legacy of memories from the perspective of spending time with your children and grandchildren. Those memories are all they’re going to have after you pass away.
‘You can have all the money in the world, but if you don’t have the time, what memories can you create? It really is about people.” – Bud Kasper
What Is Financial Wealth?
Now that we’ve outlined the four types of wealth, let’s dig into what each type really means. We’ll start with financial wealth. If you think about being financially independent, it’s doing the things you want to do each day because they are what are important to you. If you can do that and don’t need to worry about money, you’re wealthy. That’s freedom from financial stress.
Like we said earlier, some people might be comfortable with having $500,000 to do all the things they want to do, but someone else might need $5 million. It depends what you want your life to look like and how you want to live. And it comes down to stability to fulfill your life with comfort and happiness. Money shouldn’t necessarily define that. However, the worry about having enough money is always there.
The Future of Social Security
Speaking of worrying about money, a lot of people have been concerned about the status of Social Security. People keep asking when it’s going to run out, but Bud believes it will be taken care of. If it doesn’t get taken care of, a lot of Congressmen and senators will be under a lot of heat from people who are on Social Security and those who will soon be on it.
“I’m not overly concerned about that, but I am concerned about people who may be taking Social Security prematurely. Those people might not realize from a planning perspective that they can create that stability by postponing that. That needs to be considered in the overarching financial plan and what it provides.” – Bud Kasper
Social Security Is Part of Your Wealth
And don’t get us wrong. It’s understandable to be uneasy about the threat of Social Security running out because Social Security is a part of your wealth. The reason we say that is because throughout your career, you’re putting money into the Social Security system and your employer was forced to make a dollar-for-dollar match.
“That really is a part of your wealth. It’s not wealth that you can cash out in a lump sum. But it’s wealth that’s going to drive income for you during retirement. How and when you claim Social Security can be the difference of $100,000 or more of additional income coming in over the same life expectancy. People really need to plan around that part of their wealth.” – Dean Barber
History of Social Security
When Social Security was originally formed, it was designed to be a tax-free source of income. Under Ronald Reagan, the Social Security Amendments of 1983 was signed into law. Congress finally started to start taxing Social Security.
“They said that 50% of your Social Security was going to become taxable if your income was above a certain level. I believe it was above $32,000 for married filing jointly. Then, under the Clinton administration, up to 85% of your Social Security became taxable. A married couple filing jointly with income over $44,000 a year, up to 85% over their Social Security could become taxable.” – Dean Barber
Social Security by itself today is still tax-free. If someone only has Social Security and only has income coming from a Roth IRA, which is tax-free, your Social Security is also tax-free. There are ways to make your Social Security tax-free. One of the biggest wealth eroders out there is taxation.
“I’d have to think that President Reagan and Congress understood that the pressure was only increasing on Social Security. Therefore, they needed to make part of it taxable to get some revenue back into the program and perpetuate it into the future.” – Bud Kasper
Dean thinks that Congress believed that since the part of money that went into Social Security that the employer put in, which is half of it, has never been taxed and then to tax that portion as it comes out if someone’s income is above a certain level.
Setting the Stage for Financial Planning
Obviously, tax-free income is everyone’s goal. So, those developments with Social Security made financial planning that much more important. People don’t want more of their Social Security to become taxable if it doesn’t need to be.
“If there’s some way that I can have income that won’t impact my Social Security, I should direct some of my money in that direction to achieve a net positive benefit.” – Bud Kasper
What Is Social Wealth?
The next type of wealth we’ll cover is social wealth. It’s important to a lot of people to be a part of a social group. Some social wealth doesn’t require money and is just about camaraderie. Examples of that include church, the Lions Clubs, Rotary Club, or supporting a local school. It’s being with like-minded people who have similar missions and goals in life.
“There are several subgroups of my clients that live in proximity to each other. They found out that each other were using our firm. The next thing you know, they’re getting together for dinner, doing dinner rotations, and all that kind of stuff. Now, they’re friends.” – Bud Kasper
A Mix of Social and Time Wealth
Dean also has an interesting story about social wealth that also involves time wealth. He attended a funeral recently for a gentleman who was very into social wealth. His idea of social wealth was time on the golf course with his friends.
“He was in a group of guys that I got to know that would take a two-week road trip to Northern Michigan and they’d play 36 holes of golf a day. It was all about social wealth. They drove because it was less expensive and gathered coupons for the courses they wanted to play. It wasn’t like they were doing these elite type of things that cost a lot of money. But from a social perspective, it was something that brought richness to his and his friends’ lives. I saw a lot of those guys at his funeral. For the last three or four years, he had developed COPD and wasn’t able to golf and do the things he wanted to do. But he took the time early in retirement to figure out what was important to him. Social wealth was what was important to him.” – Dean Barber
Dean’s story reminded Bud of a story of one of his client couples who have been friends with some of his other clients. The husband of that couple was really close to the other husbands that really connected them to that friend group. After the husband passed away, the wife became even closer to that friend group rather than becoming more distanced. That’s an example of some of the richness within social wealth.
The Power of Technology
Another element of social wealth is technology. There is a good portion of clients and prospective clients that we meet with online rather than in person. The virtual meetings are oftentimes just as meaningful as the in-office meetings.
“When you come back to the social element of that, my wife and I decided a few years ago that we were going to have all my sons and grandchildren join us on Zoom for a virtual family gathering. We had a quiz on Disney. That was during COVID. We had a ball. It was still so cool to get everyone together virtually to do that.” – Bud Kasper
While the pandemic was a terrible time in so many ways, it did advance technology and brought people together socially in a way that people didn’t think that they could get together before. And from a time perspective, we’re seeing the same thing. A lot of our clients want to come in and visit in person if it’s convenient, but if it’s not, they can meet with us virtually.
What Is Time Wealth?
As humans, we need that social interaction, so social wealth is critical. Now, let’s dive deep into answering the question, what is time wealth? Dean and Bud recently talked all about time wealth on America’s Wealth Management Show. Time is our scarcest commodity. It’s something that we’re all granted the same amount of each day, but tomorrow isn’t guaranteed for anyone. So, take the time to do the things that you love doing. Taking advantage of every moment is critical.
“I played soccer and coached soccer with my children who are now in their 40s. And now they’re coaching soccer for my grandkids. I try to get to the games, but they play so many games. I wouldn’t have a life if I went to every game. My wife and I have to pick and choose from time to time.” – Bud Kasper
When Dean thinks of time wealth, he thinks about not waiting too long to do the things I want to do. Far too often, he’ll see people put off things for too long. But in reality, they could be five years out from retirement and he can show them that even if they didn’t save another dollar, they’re going to be in good shape.
“Take the money that you have been saving and start doing some of the things later in life. Start doing those things today. Don’t put them off.” – Dean Barber
Thirteen months ago, Bud’s mother passed away at 94. Bud had some guilt because she was in another location and he couldn’t spend as much time with her at the end of her life. A lot of us will have those kind of struggles at some point in our lives. It’s unfortunate, but it highlights the importance of time wealth.
What Is Health Wealth?
That also leads us right into health wealth. It’s so important to take care of yourself and cherish every moment with your loved ones. Health and time are very closely connected with one another. Make sure you’re going to the doctor, having regular checkups, exercising, eating right, and doing all the different kinds of preventive care. Those things are totally in your control. They’re not easy, but they’re in your control.
You can have all the money in the world, but it doesn’t matter if you’re not in good health. One of Dean’s clients passed away last year, and their situation ties into financial, time, social, and health wealth. He had a kidney transplant about eight years before he passed and his wife had breast cancer. They had plenty of money to do whatever they wanted to do and all she wanted to do was spend the winter in Florida.
The Four Types of Wealth Oftentimes Overlap
It took the husband a lot for him to acknowledge to Dean that he could do it from a financial perspective. It took a lot for him to spend the money to do that. But Dean told him to look at the reality after having a kidney transplant. He had 10 years at the most. He needed to think about time and not financial wealth.
“I could show him from a financial perspective how he could afford it and wanted him to think about time. They began to do that and did it for about four years until his health eroded to where he couldn’t do it anymore. But at least they did it. They had a good social network. They had social wealth that had nothing to do with the financial wealth that had nothing to do with the financial wealth that they had. The wife was having people pick her up from church and people were meeting them up for dinner. It was all well put together. But had we not taken the time to put together the plan and see from a financial perspective that they had the freedom from financial stress to do the things they wanted to do, I’m afraid that they wouldn’t have done it.” – Dean Barber
So, What Is Wealth?
We’ve talked a lot about financial, social, time, and health wealth. Hopefully, you can see that the question, “What is wealth?” can be answered in many ways by many people.
“True wealth is defined by things that money can’t and that death can’t take away. It’s all about your life. Your legacy can be a living legacy. It should be your memories and experiences. A lot of people want to leave a legacy for their grandkids and children. If they’re thinking from a financial standpoint, they need to have a meaningful conversation with their kids and grandkids. Ask them what they would rather have—time with us if we pay for some trips and get together each year in a destination setting or leaving a pile of money behind? Most of the time, they’ll want to go do some stuff and get together.” – Dean Barber
Remember that life is finite. We just don’t know that end date. Everything we’ve discussed should resonate with people because understanding all four types of wealth is important.
“It’s all about having the confidence, freedom, and time. But if you don’t have the confidence that you can do the things that you want to do and you have freedom from financial stress, the time part will slip away from you. You’re not going to be comfortable enough knowing that you can stop working, take a vacation, or help your grandchild get a new vehicle when they graduate college. There are so many things on people’s minds that they want to do. That’s what financial planning does. That is the biggest reward that Bud and I get every day is seeing the changes in people’s lives that financial planning brings.” – Dean Barber
Do You Have Questions About the Different Types of Wealth?
We hope we’ve helped you think about how to answer the question, “What is wealth?” And what does it mean to you? Simply put, there’s more to being wealthy than having a lot of money. The only way to truly understand how your financial, social, time, or health wealth will look like in retirement is to build a financial plan.
When using our financial planning tool, you can see that your goals need to be implemented into your financial plan. You won’t see this on your average retirement calculator. If you don’t have a financial plan, you can begin building your plan with our tool from the comfort of your own home. Just click the “Start Planning” button below to build your plan at no cost or obligation.
If you have any questions, please don’t hesitate to reach out to us to discuss them. You can schedule a 20-minute “ask anything” session or complimentary consultation with one of our CFP® Professionals by clicking here. We can meet with you in person, by phone, or virtually depending on what’s easiest for you.
What Is Wealth? | Watch Guide
Resources Mentioned in This Episode
- Maximizing Social Security Benefits
- Claiming Your Social Security
- Finding Financial Independence
- What Is Financial Wellness?
- The Guided Retirement System
- Family Financial Planning
Other America’s Wealth Management Show Episodes
- What Is Financial Planning?
- 5 Types of Financial Plans
- Time Is Your Scarcest Resource in Retirement
- 9 Items That Retirement Calculators Miss (That Our Tool Doesn’t)
Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management, LLC, an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management, LLC does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.