You probably heard plenty of stories about the wealthy. Everyone from rags to riches has unique stories. But one thing is for sure. They didn’t stop with just receiving salaries or acquiring profit. Even those born with a silver spoon in their mouth put their money where it grows. The truth is living paycheck to paycheck alone won’t get you the highest socioeconomic status. Building assets will.
Millionaires acquire their income in many and various ways. They don’t only aim for cash but also on things that have a monetary value. It is easy to increase assets with limited cash flow, but few people can. The reason is that people pay no attention to asset building—its importance, benefits, and process. It’s not just about getting wealthy but being a good steward over what you earn.
What Is Asset-Building?
Asset-building is the process of obtaining short-term and long-term assets, growing your present and future money through different sources. In simpler terms, it is having access to more funds for both the present time and future. By future means, the capital has a monetary value you can convert into cash or other assets at some point in time.
Its primary goal is a higher net worth. Net worth is the most common measurement of wealth. In general, the higher the total assets, the higher the net worth. But you can only achieve this when liabilities and debt are less than the assets. So you must avail your properties without getting more accounts. Or better yet, minimize and maintain your payables before acquiring assets.
Asset-building takes a substantial amount of time. Investments take time to increase, as does acquiring cash. That explains why the average age of billionaires is 58.
When it comes to asset-building, one leads to another. When you buy land, the next thing is a house. After accomplishing one tangible asset, you are destined to get the next. Another option is to leverage one for another. You can trade shares for a house fund. Therefore, effective asset-building requires strategy and skill; the how, when, and where you invest your money is critical to climbing the ladder.
Importance of Building Assets
Who doesn’t want to have more money? And assets? Money brings opportunities. It helps you live comfortably in this temporary world. Think of the things that you could do if you have access to more money. You could be having a retirement fund by now, a business, or you can send your kids to their dream school. Plus, you can buy the things you want.
Having more assets open more doors in life. It improves one’s lifestyle and the future generation’s. Your great-grandkids will be grateful to you for being smart in increasing your net worth because they are experiencing and reaping the fruits of your efforts.
Assets Used for Building Wealth
Assets that have monetary value are the only things you can use for asset-building. We can classify these kinds of assets into three categories—financial, tangible, and intangible.
Financial Assets
Financial assets are cash, bonds, stocks, cash equivalent, certificate of deposit, retirement accounts, and others. Besides cash, financial assets are nonphysical assets that you can gain through rightful ownership, which you can claim for future payment. These assets are more liquid than other types of assets. You can easily convert them to cash, but their rate depends on the market performance.
These assets are at risk of inflation and fluctuation. To avoid loss, it’s necessary to look at the timing and market’s condition when you cash out these assets.
Tangible Assets
Also called physical assets, tangible assets are the things you can see, touch, smell, and if possible, hear or taste. Examples of this are land, real estate properties, car, jewelry, designer items, fine arts and collectibles, gadgets, and appliances.
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Intangible assets are not physical in nature and not monetary but still represent value. In the future, it could generate economic returns. Examples include goodwill, copyright, patents, intellectual property, image capital, and personal digital assets.
Appreciating Assets vs. Depreciating Assets
When deciding where to invest your money, you need to understand that the value of every asset changes over time. Appreciating assets are things that increase in value over time, like stocks, land, or investment portfolio. On the contrary, depreciating assets are things that decrease in value after some time, like cars, shoes, or equipment.
The assets you buy will determine the amount of money you will have access to at a particular time. Therefore, the idea of building assets is to invest in appreciating assets and minimize spending on depreciating assets. Thus, when you look at your net worth, it is increasing.
Getting Started on Building Assets
As mentioned above, building assets takes time. So the sooner you start, the more you can acquire, and the more time your asset can increase its value. Here are some ways you can do now to build your assets.
Increase Your Income
The easiest way to increase your asset is to get more cash. Remember, cash is an asset. It is the first thing you need to buy other forms of assets. You can ask for a salary increase, get another job or a side hustle, anything you can do to earn more income. The more you have, the more you can buy appreciating assets.
Have a Savings Account
One of the goals of asset building is improving your quality of life today. Asset-building is not just acquiring riches but also having a comfortable life. You can achieve this by having money readily available for any expenses.
Set aside a portion of your monthly income from your savings or emergency funds. When you are anticipating an immense expense, start a sinking fund now. A sinking fund is where you put aside money monthly toward the time you spend your hefty financial expenditure. In this way, you will meet your large purchase prepared, and your other savings account won’t be involved.
You may also want to start your retirement funds. When you start early, the more your money will grow. It’s an asset for the future.
Invest in the Stock Market
Make your money work for you. Once you have more cash, invest in the long-term stock market. It is one of the best places to invest in and make your money grow. Stocks, or equities, are income-producing assets wherein you can reap the benefits now or later. You can liquidate your profit now and purchase other assets, or watch them grow exponentially, then use them in the future. However, there may be risks in investing in the stock market, so be sure to learn more about it or seek a financial advisor.
Invest in Real Estate
Owning a real estate property or land is another way of building assets. As you know, land and properties are accumulating assets. As the earth’s population increases, the earth’s land volume becomes limited for living spaces. Hence, properties become valuable.
However, real estate properties only become an asset when it’s worth more than how much you owe or purchased it for. If it is the other way around, it becomes a liability instead of an asset.
Reduce Your Debt
Debt can hinder your asset-building in many ways. First, it ties up your cash, which is the first thing you need to acquire assets. By cutting off a percentage of your monthly income, you are not maximizing the profits you gain.
Second is your debt-to-income ratio, which will determine whether or not mortgage lenders will help you acquire an asset. Debt slows you down in reaching your full potential and achieving a higher socioeconomic status. So an essential part of asset-building is diminishing debts. After which, you can see the ease as you build your assets.
We can’t overemphasize that you have to start building your assets now because it takes time. Wherever you are, whatever your circumstances, just make the decision right now to take a step in asset-building. You don’t have to do all the things listed above at once. Take one step at a time. Even a small step is progress. Create a better future for yourself, and leave a legacy for your family.
At Money Management Inc, we can help you in managing your assets and provide financial advice. Just give us a call at 601-990-2102 or send us a message at jmckennon@virtuecm.com. Contact us now and start building your assets today.
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