Liability, Income, Valuables and Assets
Note: In the following definitions, the word “anything” is used to describe both tangibles; living things (Including humans) and non-living things and intangibles (facts and ideas).
Liability: anything that takes more money than it gives you per time.
Valuable: anything that neither takes money from you nor gives you money per time but can be potentially sold.
Asset: anything that gives you more money than it takes per time.
Income: the money you receive from an asset per time.
Here’s an interesting discovery we made lately: it is the way you use a thing and the state of that thing that determines whether it is a liability, a valuable or an asset. Carefully think about that.
For example your house is a liability as long as you only live in it because you must continue to spend money to maintain it. That same house can become a valuable if abandoned but because of its potential economic value, you can sell it if you have to. The house can be an asset when you rent it out.
Someone who still depends on others to meet his/her basic financial obligations is a liability. The same person becomes an asset when he is able to generate more than enough income to meet his/her basic needs.
An asset generates income because it solves other people’s problem. The capacity of an asset determines the quality and quantity of the problem it can solve hence determines how much income it generates.
A truly wealthy man is one who is continually focused on meeting the needs of others by continually upgrading the assets which he currently owns (including himself) and acquiring new ones. He is someone who is grounded in the understanding that income naturally flows from assets.
A billionaire or millionaire is not rated by his income but by his assets! His wealth is made up of over 90% asset! Things like shares in profitable companies, real estate, intellectual properties, and so on.
It is a common and dangerous mistake to think that a high and regular income from one’s job or business makes him wealthy, and that financial increase is the same as financial stability; this assumption leads to living a lifestyle that is in reality, beyond one’s means.
Reality Check: No matter how much money you make; you are not wealthy if 70% of your income comes directly from your job or business. This is because it is very risky to depend on only one source of income; as no business is too big to fail and no job is too secure to lose.
Most high income earners realize too late that job security is not financial security and that in spite of their seemingly huge retirement payoffs; it takes a new, often more rugged mentality, which they will need to spend years learning, to run a business successfully.
It is true that you are your greatest asset and that wealth creation begins with you, so having a good business or a well paying job is very advantageous in the wealth creation process. But you must understand that lasting wealth with peace of mind is a function of continuous financial increase and stability which can be achieved by continually investing in quality multiple assets.
Interestingly you can be wealthy but not financially free. Financial freedom is a function of money (income) and free time. A financially free man is one who doesn’t need to work for money and yet get’s richer with time.
Financial freedom is determined by the type of asset you acquire more of.
Moneyculture is a Wealth Education and Investment Advisory Company. Email: email@example.com