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Millionaire Money Habits

October 31st, 2008 at 7:00 pm

What Are Assets and How Do They Make Your Wealthy

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?

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