Personal capital: what is it?
Now you can often hear about the need to create personal capital, including I write a lot about this. What is meant by personal capital – I will briefly consider in this note.
The concept of "capital" came to the field of personal finance from the field of corporate finance. If you look in dictionaries, you will see something like this:
Capital is value used to obtain surplus value through productive and economic activities based on voluntary exchange. Capital is not just a value, but a self-increasing value (Wikipedia).
If we simplify all these abstruse phrases, we get the following: capital is money that creates new money.
In order to create new money, enterprises invest their capital in various assets, carrying out the same “production and economic activity". A person or family can also invest their money in some assets that will generate income by creating new money for them. In this case, money becomes capital.
For example, if a person has 1 million conventional units at home, this is not capital, it is just money.
If 1 million conventional units are deposited on a bank deposit and bring interest, this is already capital.
If dollars and euros are bought for 1 million conventional units, which grow in price, creating surplus value, this is also capital.
In conclusion, I will say that personal capital is the most important and significant financial asset of any person or family. Only the availability of capital can lead to the financial independence desired by all.