Do you want to be financially independent?  To not worry about your next pay check?

I thought you would. Who wouldn’t?

It’s not a trick question.

And I’m not about to sell you something.

I am teaching you something.

To make money while you sleep, you need a bunch of assets.

What is an asset?

I’m glad you asked.

What is an Asset?

Let’s look at Investopedia’s definition:

An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. An asset can be thought of as something that in the future can generate cash flow, reduce expenses, improve sales, regardless of whether it’s a company’s manufacturing equipment or a patent on a particular technology.

That sounds complicated.

Let’s narrow it down and make it simple.

An asset makes you money.

In other words, an asset puts more money in your pocket than it takes out.

That’s it. See, you can make finance simple.

What an Asset is Not.

By Investopedia’s definition, some things qualify as assets that I do not consider assets.

Like your personal car.

Before you flip out, I’m not saying don’t own a car.

But don’t think it will make you rich.

It may be necessary for you to own a car to get to work but it’s costing you money.

Don’t believe me? Cash in all your investments and buy nothing but cars.

And then see what happens.

You’ll be broke in no time.

The Thin Line Between Assets and Liabilities.

Here’s the confusing part.

The same item can be an asset or liability.

It depends on how you use it.

Take a look at your house. Your personal house is not an asset. It’s a liability.

Don’t believe me again? Do the same thing as the cars and buy nothing but personal homes.

But homes can be assets if you rent them out.

Renters cover your expenses and hopefully pay you a nice little extra for your troubles.

I’ve written a few articles about real estate. You can read them here:

7 Rental Property Fundamentals That You Need to Get Rich
How Do You Make an Attractive 20% Return Renting Homes?

This applies to other things as well. Like your car.

You can use Uber to pick up someone on your way home from work.

The passenger pays you for the ride and if you do it enough your car makes you money.

Not a bad gig.

Summary

Assets can be simple if you simplify the definition.

If it makes you money, it’s an asset. If it doesn’t, it’s not an asset.

You want more assets than liabilities.

That way assets can pay for your liabilities.

If you have enough rental homes, they will pay for your million dollar beach house.

That’s the goal right?

What other assets can you think of?

Click the link to return to Finance Footing home.

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