Wealth comes in many forms, often described as different types of capital. And the good news is that even when financial wealth is disrupted, other types of capital can be nurtured and grown.
Sometimes income is disrupted, the economy takes a downturn, or investments lose money. Certainly, this is been the case for many Americans in recent months.
In times like these, it is imperative to look at the bigger picture of wealth and the endless possibilities of wealth creation.
The sum of your wealth cannot be determined by simply adding the numbers in your various accounts and investments. The worth of a person goes beyond net worth and cash flow.
Today, we review several different types of capital. While the value they represent may not be primarily economic, all types of capital represent real value. And with the right strategy, all have the potential to be converted into financial capital!
Economic capital is what we tend to think of when we think of “capital,” so let’s start here. These types of capital are either in financial form or located in assets that can be easily converted into financial form.
Financial capital is represented by assets such as savings accounts, stocks bonds, and the cash value of life insurance. Financial capital also includes cash flow and equity. It can also be represented by debt as well. For instance, you could borrow money using an asset such as real estate or life insurance as collateral, then reinvest it elsewhere.
Natural capital, or living capital, represents land, trees, topsoil, oil and gas reserves, mineral deposits, rivers, fish, and other natural resources. Through wise management, these resources can often be enhanced and sustained, rather than simply depleted.
Manufactured capital, or material capital, represents man-made tools and structures that enhance natural capital or convert it into financial capital. This would include the home or hotel built on the land. The barn, fences, tractors, etc. that turn land into a working farm. The oil rigs that convert resources into energy. It includes roads, railways and other infrastructure and technology as well.
Right now is an ideal time to shore up your natural and manufactured capital. Plant a garden or acquire chickens to give your family a source of fresh produce and eggs. If you are home instead of at a job, it may be an ideal time to stain the fence, paint the kitchen, or upgrade your home in other ways.
We discuss human capital several times in our Perpetual Wealth book. That’s because families that build generational wealth successfully understand the importance of it! After all, it is humans who conceive of, purchase, develop, earn, or convert all other types of capital into wealth! And if human capital is not nurtured, money tends to be lost or squandered rather than grown.
Intellectual capital or intellectual property represents ideas and concepts that have value to others. It can lend itself to passive income with the right strategy.
The books we have published are intellectual capital. Trademarks, licenses, even Harland Sanders fried chicken recipe are intellectual capital. Artistic capital such as music, films, art and literature are also forms of intellectual capital.
Experiential capital includes the wisdom, knowledge and skills that come from time and experience. You can read books about running a farm and decide you’re ready to be a farmer. But the farmer with 30 years experience will be far more successful—with or without the books!
Human capital in corporations
Companies also refer to their workforce, appropriately, as human capital. It’s hard to over-estimate the value of a well-trained, experienced workforce, skilled leadership and management, and a positive corporate culture.
A corporate culture capable of attracting and retaining top talent gives a company a big advantage. Zappos famously developed a “happiness culture” that inspires creativity and employee satisfaction. (I got a chance to tour Zappos headquarters a few years ago, and it was indeed a happy, creative place!)
Other companies have distinct cultures that enhance customer service and empower employees. From Apple to Edward Jones, companies that nurture human capital develop a valuable asset.
In the realm of human capital, we believe everyone has personal capital. Everyone has their own personality, character, and strengths. Dan Sullivan talks about Unique Ability—the natural talent and passion that make you who are are. What unique and wonderful gifts do you bring to those around you?
There are people with extreme compassion, such as Mother Theresa. People with emotional capital who bring gratitude to every conversation. People with endless creativity, boundless energy, or a contagious smile. People with a willingness to help others in need. (Tip: I have found it to be most effective to offer specific ways to help in such a situation!)
What do you bring to the table? What qualities do you have that add value to others? Brené Brown’s authenticity displayed in her TED talks propelled her into the public eye. David Goggins tapped into extreme grit and resilience to become an ultra-endurance athlete, Navy Seal and national inspiration. I am fortunate to have many colleagues motivated by integrity and commitment to do the right thing.
Your personal capital is an asset that no one can take from you.
Social capital is derived from connections and relationships in a community. Trust and influence are the currency of social capital, which generally promotes shared values and the common good.
There are many ways that social capital can be converted into financial capital (although that is not always the goal). Thought leaders, influencers, and celebrities can leverage their social capital into best-selling books, new businesses, endorsement deals and strategic alliances. Affiliate marketing is an example of a business based firmly in social capital.
You don’t have to be a Kardashian or famous athlete to leverage your social capital. Anyone with influence in a particular community can become a sought-after affiliate or business partner. Even now in this time of social distancing, people are building social capital by using social media to attract, connect and network effectively.
In Perpetual Wealth, we describe how the social capital of a family can help develop the human capital of its members. Family gatherings, retreats, and family businesses have long been used to share a wealth of knowledge and experience with younger generations.
Cultural and community capital are other forms of social capital. Community identities can form around ethnic or religious heritage, philosophical and political identity, military service, and other shared experiences. These communities tend to be very supportive to those within the circle. Needs are met, businesses are supported, and good things celebrated!
The Strategic Coach community of entrepreneurs in which I am both a participant and an associate coach (at different times) is one such example. There is great value in being part of a community where people are committed to one another‘s success! We have also seen a true community grow in the Prosperity Economics Movement, especially among advisers who attend events or collaborate online.
There can be a wonderful synergy between human capital and social capital. For instance, we have been able to bring wonderful speakers (with intellectual capital) to our advisor events where they benefit from the value and connections in the community!
Peter Diamandis has done the same thing on a larger scale with his Abundance 360 program. Leaders come to share their insights and in turn, benefit from the community. Subject matter experts connect with leaders, people with skills meet those looking to employ such skills, and investors find entrepreneurs with exciting projects to fund.
Capital is not limited!
There may be a finite amount of dollars in your bank or brokerage account right now. But whatever that number is, you are not limited by it. You can build your wealth in any economy through different types of capital.
Take inventory of ALL of your assets. Go through this article and make a list of the types of capital you possess. Dan Sullivan‘s resource on Unique Ability is another good place to start.
There is no limit to the value you can create for others.
Nurture your human and social capital through learning, developing skills, and connecting. Brainstorm new possibilities, focus on what you desire, and be open to opportunities that may show up. Paraphrasing a Tony Robbins quote… You are not limited by your resources, only by your resourcefulness!
We are thrilled you are part of our community! Partners for Prosperity is here to help you grow your prosperity in every way. Our specialty is helping people build wealth in any economy… without Wall Street risks!
Schedule a complimentary call to find out more… we’d love to be your Partners for Prosperity!
— By Kim Butler and Kate Phillips