In the world of the wealthy, investment is one of the most important concepts. This is a term that has been bastardized by some writers and speakers to the extent that it sounds repetitive. You should know, however, that without making investments, you can never create real wealth.
When it comes to investing, there are other important concepts to understand. There are expenses some consider as investments that can ruin their financial lives in the long run. It is crucial, therefore, that you know the right things to invest in.
Do you desire to create real wealth? Do you want to make meaningful investments that will help shape your future financially? Then you must learn to invest in assets. This is the golden rule of investment. To do this at all times, you need to understand what assets are.
What is an Asset?
For individuals with a wealth mindset, an asset is any item that brings income. It includes all tangible and intangible items that will bring money into your pocket. This can be tangible things like machinery or intangible items like stocks or patents. In addition to bringing money to your pocket, most assets will increase in value too.
Liabilities, on the other hand, are items that take money out of your pocket. The mistake many make is that they assume that bills are the only liability they have, and all items they purchase with cash are assets. This is so wrong and can ruin your financial future. A luxury car, for instance, can be a considerable liability, since it will cost a lot of money to maintain and will not be returning money into your pocket.
The simplest way to differentiate between an asset and a liability is to consider whether it can return money to your pocket or returning cash into your pocket.
A Simple Illustration
One of our favorite illustrations of why investing in an asset is great for your financial life is simple logic on how to buy a car. An average person will buy a new car and keep paying for it from his/her salary for one year or more. Another person who understands the value of investments will save more money, buy an asset, and use the returns from the asset to pay for the car. A good asset will keep bringing money into the person's pocket even after paying fully for the car.
Are you investing in assets? In other words, are you acquiring tangible and intangible items that will bring money into your pocket and increase in value too? If you have not been doing that, this is the right time to start. Good assets will set you on a sound financial path.