Skip to main content

Financial assets maketh a wealth creator

Blog Image
If financial assets maketh a wealth creator, then the right assets maketh a great wealth creator.
 
According to Investopedia, ‘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’.
 
By conventional wisdom an asset generally includes everything that is owned by a person that has value.
 
This may include:
  • The cash in your current account
  • Your vehicle
  • Equipment or business stock
  • Pproperty
  • Endowment policies
  • The cash value of your life assurance policy.
The future benefit indicated in Investopedia’s definition refers to the growth in your asset’s value (also known as capital growth). So if you purchase a house in 2010 for $600,000, and sell it for $1 million in seven years time, the capital growth on your residence is $400,000. 
 
Does this mean that every asset you own including furniture is suitable for wealth creation? The answer is an emphatic NO.  
 
As a wealth creator you must accumulate the right financial assets. And the right assets possess three essential properties:
  1. They must generate passive income, i.e. put money in your pocket.
  2. The passive income stream is sustainable and predictable.
  3. The return is sufficient to help you achieve your goals.  
You will notice that when it comes to wealth creation, the emphasis is placed on passive income, not capital growth.
 
Assets have value and tend to increase in value over time, but this must not be your primary focus.
 
Passive income/cash is king and capital growth is the cherry on top

Rule of 6 book