What are Assets?

What are assets? In your accounting 101, you learned that aside from cash itself, assets are anything that has value which can be converted to cash.

However, according to Robert Kiyosaki, as many of you have known, ASSETS are anything that puts money into your pocket while LIABILITIES drains money out of it. He then continued to say that if you stopped working, ASSETS will feed you while LIABILTIES will eat you.

Is Your House an Asset or Liability?

Now, going back to the definitions of assets and liabilities above, is your house an asset or liability? This was one of the questions I wrote before and I got several feedbacks including ones from people in the field of accounting. The one below got my attention:

“Cashflow (positive or negative) may make an asset a good investment or a bad investment but it will not turn an asset into a liability. The use of debt funding (a mortgage) to buy the property does not change the property itself from an asset into a liability. How can it?

The position can be illustrated very clearly by contrasting the positions of:

1. a person with no assets or liabilities at all; and
2. a person whose only asset consists of a self occupied unencumbered home.

If you beleive that the home is a liability (because you have to pay outgoings) you would have to conclude that person #1 has a higher net worth that person #2 – which is obviously nonsense.

Another way of looking at the issue is to consider other instances where there is negative cash flow associated with an asset – a property development, a business start up, a mine development. If Kiyosaki is right then all of these are liabilities rather than assets. Again, that would be obviously wrong.

As for Kiyosaki, once you have expenses associated with your house such as mortgage payments, utilities expenses (water, electricity, telephone, etc.), and taxes, your house is considered as a liability.

Accountants are true that it’s an asset, but it’s NOT YOUR ASSET but the asset of banks who receive your mortgage payments, the assets of municipalities because they receive your taxes, and the assets of utility companies because they receive your utility payments. However, as soon as you rent it out to tenants and get rental income from it, then it becomes an asset to you.

Learning financial intelligence is what separates the rich from the middle class and poor people. Accordingly, the rich distinguishes itself from the crowd as it knows the true meaning of ASSETS vs. LIABILITIES – they keep on buying assets to generate passive income and use it to buy and enjoy liabilities.

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Having said that, what are some of the examples of assets that can generate passive income for you? You should be concentrating to build these assets in order to achieve financial freedom and escape the rat race.

EXAMPLES OF ASSETS

1. Real Estate -Real estate is an asset because it can provide passive income in the form of rental income from tenants. In fact, you can acquire a property that has a ready tenant and the price you have to pay is just the downpayment. The monthly amoritzation should be shouldered by the rental income from the tenant.

In my article Make Money From Home, I also mentioned several ways to make your house as an asset generating income – location for a shooting or TV advertisement, renting it out to bedspacers, and venue for banner advertisements.

2. Business – Once your business becomes so successful that it can stand on its own without you actually overseeing it, then it becomes an asset. Likewise, businesses which have a huge league of franchisees are also considered as assets since the owner is entitled to get annual franchise fees or royalty fees from them.

3. Copyrights – Copyrights in the form of intellectual property are considered assets as well. Authors which have top selling books usually get royalty fees as percentage of sales. Likewise, singers and music artists which have songs that topped the billboards gets royalty fees for every album they sold. Producers of top grossing films gets a percentage too in the sales of tickets from movie theatres worldwide as well as inventions made by an inventor. That’s how Bill Gates easily became the world’s richest person for several years with his invention of Windows OS through his company Microsoft!

4. Paper Assets – Stocks and bonds can also be a form of asset as long as it continuously give passive income. Stocks can be an income generating asset in the form of dividends when the company performs well. Likewise, bonds is a form of asset too as it gives a fixed income to the bond holder. To find out about stocks, you can view how stock market works.

5. Virtual Assets – With the rise of ecommerce and internet marketing, would you believe that blogs and websites are now considered as assets? Yes, because they can rake huge amounts of cash. A lot of people are now into flipping websites (buying and selling) for a profit.

Now, which assets do you have? Remember that the early you build your assets profile, the younger you can achieve financial freedom. Who else want to enjoy life during their old age when ailments and sickness are coming out already?

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