The road to wealth is paved with assets that will make you rich. But what are assets, what makes them different from other things that you own, and how do you acquire them?

By definition, assets are things that you own that can be converted into cash. Assets can be tangible or intangible things, such as an ability. For example, if you are skilled at fixing cars, you can use that skill to produce cash. Your home is often considered an asset because it is something that you own that usually appreciates in value. What makes valuing assets tricky is that they can only be valued at today’s market price.

For example, when you owe shares of a company stock, it is only worth what it can sell for today, but a week from now it could be worth a lot more or a lot less. But usually you can get a pretty good idea whatsomeone’s net worth is by measuring their assets.

So how do assets differ from liabilities? Liabilities are also tangible or intangible things, but they cost money rather than make money. They are the things that are hindering you from getting ahead. For that reason, it is possible for assets to become liabilities and viceversa, and the two can easily be confused.

Let’s say you own a small dry cleaning service. One day it could be producing a nice income for you and be one of your greatest assets. But over time, the are your location is in starts to deteriorate, people are losing their jobs, and a competitor moves in that can provide the same service at half the price. As a result, your business starts to struggle and is costing more than it makes. At this point your small business is a liability, but it could turn around and become an asset.

As you can imagine, the key to building wealth is to acquire assets that produce money for you, and shed as many liabilities as possible. Purchase, create and own assets that produce residual income in order to get where you want to be financially. Lose the liabilities and you’ll get there faster.

So, my question for you is… if your car has equitable value, is it an asset or a liability?

Or, if you have skills that can allow you to build a multi-million dollar business, but you are not in a position to risk leaving your job, is your job a liability or an income producing asset?

Wealth “gurus” say that the secret to becoming rich is more cash flow. But what is cash flow and how do you get it?

Cash flow is a finance term that used to describe financial performance, and measures the amount of money that comes in and out of a business. Simple put, it is income as it compares to expenses, which can quickly be determined by looking at a “cash flow statement.” In order for a business to be profitable, the amount of money that it brings in must exceed overhead expenses and other costs of doing business.

When we’re talking about wealth creation, cash flow is used to describe how profitable you are by analyzing your own cash flow statement. This is done by looking at the amount of money you or your assets bring in compared to your cost of living. Usually when talking about building personal wealth, cash flow refers to a more broader concept of creating passive income models In other words, building assets that produce an income for you. For example:

• Rental income from real estate
• Dividend payments from stocks
• A franchise business
• Vending machines
• Royalty fees from books

These are things that have the potential to produce a paycheck with our without your intervention. The idea is to create enough of these income streams so the incoming cash flow these systems generate exceed your outgoing cash flow, or expenses. That’s when you’ve achieved financial freedom.

So now that you know what cash flow is, how do you get it?

There are a few ways to improve your cash flow. Probably the fastest way is a defensive maneuver, which is to reduce your living expenses. You already have an income in place, so if you decrease the amount of money that goes out, you increase the amount of money that you get to keep.

The other way is to take an offensive approach, which is to obtain assets – or things that have an equitable value and can be converted to cash. This can be accomplished by:

1. Build assets
2. Buy assets

For instance, you can generate a cash producing asset by sitting down, writing a book and then publishing it. This requires some up-front work, but for the most part it has the potential to bring in an endless amount of income, year after year.

If you have cash on hand, you can buy assets such as real estate, stocks, and profitable businesses. By purchasing income producing assets, you retain your cash in the value of the equitable asset, and in the meantime that asset produces income for you and potentially increases in value.

Where the rich get rich is when they take advantage of compounding their wealth by moving their funds right back into more cash flow producing assets. This allows you to accelerate your wealth and eventually enjoy a much greater income than you may ever need.

Other than the obvious illegal ways to make fast money, such as working on a street corner and dealing drugs, there are legitimate ways to earn a few bucks when you’re in a pinch or need some extra spending money. Here are 3 more ways to make fast money that I came up with…

Make Money: Cruise around your neighborhood for curbside furniture that is being tossed away or sold at a garage sale. Old furniture has a durability and craftsmanship that is hard to find, and when cleaned up can have a tremendous value. Find a nice antique chair, sand it down and add a fresh coat of finish and you have yourself a potentially valuable item to sell. Snap a picture and post it on eBay or take it to your local consignment shop. I have some retired friends that started to do this as a hobby and now make an incredible amount of money by accident.

Fill Needs Wanted: Search on Craigslist for services that are needed that you can fulfill. Often times they are not complex jobs, but they just need to be done quickly. Transcribing audio interviews, for example, can be done over email – and you’ll instantly get paid throughPayPal. This also allows you to seek beyond your neighborhood and do business across state lines.

Outsource Your Outsourcing: There are communities online of people who announce that they need specialized jobs done, and those jobs are bid on by those who can complete the task. But that doesn’t necessarily mean you have to be the one completing the task, you just have to deliver what was agreed on. So, why not win a contract to do a project and then outsource it to someone who can do it at a cheaper price.

For example, if Mr. X needs a new piece of software written and will pay you $3,000, you can find a freelancer elsewhere who will do the job for $2,000. Playing the role of the classic middle man, you get to keep the $1,000 difference.

This method, by the way, I didn’t come up with on my own. There are people who do this to bring in a healthy full-time income. Check out the Xtreme Outsourcing program to find out more about what I’m talking about.