Numbers. Some people love them and some people want to get away from them more than Joe Budden wanted to get away from the Migos at the BET Awards.
Regardless of how you feel when presented with numbers, they are the degrees of your financial forecast. Here at The Talented 6 we’ve written over a dozens posts on personal finance, but oftentimes these posts don’t start on the ground floor. Well today, I want to go back to fundamentals and cover the most important financial tool for each and every one of us – assets.
What exactly is an asset? How do you know the difference between an asset and a liability? Why do assets even matter in the first place? We’ll break down all these things below.
What Is An Asset?
Dictionary.com defines an asset as – a useful and desirable thing or quality. Investopedia.com defines an asset as – a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.
Simply put, assets are things that you own that can be used to create benefit. Whether that is a physical item, or a skill/competency – if you can leverage it to create value, and benefit by earning cash it is an asset.
Examples Of Assets
· Securities – Stocks and bonds
· Household items that can flipped on eBay, Amazon or Craigslist
· High demand sneakers or clothing items
· Digital skills you can advertise on sites like Fiverr
· Technical skills that can be transferred to others
· Soft skills that allow you to coach or mentor others
· Any other skill or competency that God and hard work have blessed you with that can be taught to others
Remember, don’t put yourself in a box, non-traditional assets can earn just as much as traditional ones. Fill your mind with skills and competencies. Unless you're an athlete making a living with your body, your earning power is determined by what's between your ears.
How Can I Recognize An Asset?
In his classic book: Rich Dad Poor Dad Robert Kiyosaki describes the difference between assets and liabilities as such, “an asset puts money in my pocket. A liability takes money out of my pocket.”
This way of thinking is contrary to how accountants view assets and liabilities but it is the perfect definition for personal finance. If you can sell ______ and make more money than what you initially paid for it, if it is a physical item then it is in fact an asset. If you can create a course or build something with your hands, that skill is an asset.
Why Do Assets Matter?
Former New York Jets coach Herm Edwards was talking about football there, but his words apply to personal finance all the same. You work to earn and build assets and you strive to obtain enough assets to beat your liabilities (bills). If over time your assets continue to grow while your liabilities stay low you’ll win the game, climb out of the rat race and be in position to retire worry free. If not, you’ll feel the frustration of 1,000 Herm Edwards’.
Assets – Liabilities = Net Worth
Before you make any financial decision, consider that formula and how your decision will impact it. It’s not about how much you make, it’s about how much you keep.