# Excess Capital

Excess capital is the difference between total assets and total liabilities on an individual’s economic (or holistic) balance sheet. Excess equity is the amount of capital that an individual can gift or give to charity. On this page, we discuss how to determine an individual’s excess equity and how it relates to core capital

## Excess capital definition

First, let’s determine excess equity. Let’s start with an individual’s balance sheet, which consists of assets on the left-hand side and liabilities and equity capital on the right-hand side. Assets include financial and other assets, but also the present value of net employment income expected to be generated over the lifetime (i.e. human capital).

On the liability side, we have all the debts (mortgage, credit card debt) as well as all the future costs necessary to sustain a given lifestyle. This includes costs of living as well as planned gifts and bequests.

Now, if we subtract total liabilities from total assets, we end up with the individual’s equity capital.

## Relationship with core capital

Excess capital is related to core capital in the following way. Core capital is the amount of assets needed to meet all the individual’s liabilities plus a reserve for unexpected needs. Any capital in excess of core capital can be considered the capital that is not needed to meet future liabilities and unexpected needs.

## Excess capital example

Let’s consider a numerical example. The following table shows an individual’s holistic balance sheet. The equity capital, that is the amount by which assets exceed liabilities, is the individual’s excess equity. Note that core capital equals a fraction of the assets on the right-hand side that will cover the future liabilities and a reserve.

## Summary

We discussed how to calculate the excess equity using an individual’s balance sheet. This approach is used by financial advisors to assess whether an individual will be able to meet his or her lifetime goals and/or lifestyle.