What Makes an Asset?

Rich people buy assets, and the poor and middle class buy stuff. We have all heard this before, but how do we know an asset when we see one?

The first step is understanding the definition of an asset. I like Rich Dad’s definition of an asset. An asset puts money into your pocket, whereas a liability takes money out of your pocket.

Many people consider their home an asset. This is true, but the confusion is in whose asset it truly is. If you have a mortgage on your home, then it is most likely your banker’s asset and not yours.

There are three asset classes: Real estate, business, and paper assets. Your biggest asset is you. You can also be your most significant liability. When you buy a business, the way you manage the market dictates, whether it becomes an asset or not. Your work ethic, your commitment, and your knowledge all play a role in the success of the business.

If you want to be a successful investor, the first thing you must work on is you. It is also essential to analyze your strengths and weakness and then buy your assets accordingly. For example, if you do not like to paint, do repairs, or do yard work, then a buying a fixer-upper rental property might not be a good investment for you.

I have heard people talk down on home-based business opportunities, such as network marketing or internet marketing. On the other hand, people tend to have more respect for franchise owners or traditional business owners.

Since it is easier for people to get started in a home-based business, there tend to be more people who are liabilities which get involved. Since they are liabilities themselves, when they get involved in a home-based business, a lot of times their business becomes a liability. A person who is a liability is a person who has a personal negative cash flow. How can a person who does not manage his/her finances responsibly, expect to manage the cash flow of business?

Alternatively, people who own traditional businesses tend to get more respect. Maybe it is because they can afford the hundreds of thousands or millions of dollars to invest in a conventional business. Whether that business becomes an asset or liability still depends on the person.

Only after your business has positive cash flow and puts money into your pocket, does it become an asset. It is much easier to turn a home-based business into an asset because the expenses of a home-based business are so much lower than that of a traditional business. Earning $5,000 a month from an internet marketing business is the same as making $5,000 a month from a franchise when it comes to your asset column.

Remember that the most critical asset when it comes to investing in your portfolio is you. This should motivate you always to keep working on your investing skills, keep increasing your knowledge, and continue to get better.