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What are Assets and How Do They Make You Rich?

Do you know all the types of assets you own and how they can make you rich?

I’ve been an investment analyst for more than a decade and in investing, a company’s assets are a big part of how much the stock is worth. Assets are what the company owns and help make sales.

But assets are just as important in personal finance. In fact, understanding what assets are and the difference between assets and liabilities will make you rich.

Let’s look at a personal finance definition of assets, the types of assets you can use and how to be truly wealthy!

How Assets Make You Rich!

In investing, assets are anything a company owns that can be used to produce a product and profit. This includes inventory, receivables from prior sales, factories and patents. In personal finance, your assets include all your cash accounts, investments, real estate and even some of the things you own that might not create a return but are still valuable.

The other side of your financial health is liabilities, the money you owe on credit cards and loans.

In investing, you look at a company’s assets versus its liabilities. Having billions in assets doesn’t mean as much when the company owes tens of billions in debt. You get the same thing in personal finance.

You see this all the time, people with an amazing collection of assets. They might have a $40,000 Porsche and a home valued in the millions but how much do they owe on those assets? If they owe in liabilities as much as those assets are worth then they really don’t own anything.

So when you’re thinking about assets, understand that your net wealth is the value of your assets minus how much you owe.

What are Your Assets?

You’ve got more assets than you probably realize.

First, there are your real assets like your home and your car. Those assets may not seem like they help make money but they certainly save you money in rent and versus taking public transportation.

The most obvious assets you own is the cash in savings and any investments in a brokerage account. Those stocks you own are an ownership piece of a company, hopefully a company that’s making money and paying you dividends.

what are assets in personal financeOne asset that most people overlook is their education and experience. In investing, we look at ‘intangible assets’ owned by a company. These are things like patents that have value and help produce a profit because customers will buy more of the company’s product.

In personal finance, your education is an intangible asset. It might not be a physical asset like a home or real estate but it helps you earn a higher wage.

Your personal finance assets include:

  • Your home and any real estate you own
  • Your car as long as you don’t owe more than it’s worth
  • Cash and investments
  • Anything you own and use to make money, i.e. a computer or home office equipment
  • Your education

How to Use Asset Allocation to Grow Wealthy

Now that you know more about assets, you can start to come up with a plan to increase your personal finance assets and grow wealthy.

In investing, there’s a concept called asset allocation. It isn’t about analyzing a company’s assets but about investing in different asset classes from the investor perspective. Investors put their money in stocks, bonds, real estate and even peer loans to spread out their risk and have money coming in from different sources.

The idea is that when one asset isn’t producing a return then the others will be making money. For example, stocks do poorly during a recession but an investor will still make money if they have other assets like bonds and real estate.

You can use that same idea of asset allocation in personal finance.

Having all your money in one asset, maybe in your home, could leave you busted if home prices crumble. Spreading your money around in different assets though helps to provide a constant stream of return and make you wealthy over the long-term.

So how do you grow your assets?

  • Budget and save money to invest every month
  • Invest in your education by taking night classes or an online course
  • Start a part-time business for extra income
  • Pay half-payments on your mortgage twice a month instead of one full payment to pay it off faster

Remember, owning assets doesn’t mean anything if you owe money on them so don’t run out to buy an expensive house just to say you’ve got an asset. Focus first on assets that will help you make money like an education, investments and a side business. Stay on top of your liabilities by paying off the debt and watch as your assets make you rich.

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