The definition of an asset is essential to understand, no matter your situation in life, it’s essential to understand what assets are, before trying to accumulate them.
Assets are, in essence, anything owned that generates money, or that can be turned to money in the future. In all honesty, assets are what make people rich, Robert Kiyosaki’s Rich Dad Poor Dad is a great book to start learning about this aspect of financial success and freedom.
Let’s take a look at an example to further demonstrate what an asset is, and how we can accumulate them:
Bill owns a house, he’s been living in it with his wife for the past four years, he had a $200,000 dollar mortgage on the home, which is now down to about $170,000, he pays around $1,500 each month for it. His home was worth $215,000. Bill’s payed a total of $1,500 * 12 months * 5 years + $15,000 Down, resulting in a total disbursement of $105,000 over five years. Bill’s home is worth about $350,000 today, resulting in an equity of $350,000-$170,000, or $180,000. In total, Bill has gained about $95,000 in his property, this is obtained by subtracting the total equity from all the payments he’s made. Bill feels rich and wonderful!
Bill’s home is not an asset in this case, despite the gained equity. This is because it does not produce income for him, and the equity is not actively being used to produce more wealth. Despite having $95,000 in equity, it is unlikely Bill could pull the equity out and use it to finance an investment that would return a greater value than his $1,500 monthly mortgage payment. Ladies and gentlemen, your home is not an asset, it’s a liability. The only method a home could be treated as an investment would be if the owner were to sell it, and only if they make a net profit on it. Note that I did not account for any other expenses related to ownership of the home.
Instead of buying a home, Bill could have rented an apartment for much cheaper, and spent his money on investments, such as stocks, bonds, income-producing real estate, or any other asset.
Dear reader, if you wish to succeed, learn about assets, learn about finance, and acquire assets.
If you’re interested in starting your journey to financial independence and success, I highly recommend picking up Rich Dad Poor Dad, here’s an affiliate link to purchase it on Amazon, you would be supporting me too!
Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
If you’d want to learn more about achieving goals and fighting a lack of motivation, I highly recommend Grant Cardone’s The 10X rule, please feel free to purchase it using this Amazon affiliate link in order to support me as well!
The 10X Rule: The Only Difference Between Success and Failure