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Ponder this: What are the major purchases you have made recently? Will those things you bought make you money or make you lose money.
Do your purchases provide you with passive income or do they make you someone else’s passive income source?
The asset mindset is what separates the wealthy from the poor. It is a clear indication that the wealthy have their road to financial success well mapped out while the poor on the other hand do not.
Appearing to be rich without actually planning to get rich is one of the setbacks of the poor. The poor spend all their money on luxurious items, which eventually depreciate and become worthless.
The wealthy remain wealthy by investing their money and spending what is left. They know exactly how they will become wealthy.
The poor on the other hand first spend their money on feel-good items, then they think about saving (rather than investing). Usually, after they have bought the latest fashion item there is nothing left to save.
Time is the crucial income-generating factor
Time is your most valuable resource. If you want to build wealth, you need to treat your time as your most important resource. You cannot get back your time once you use it.
In wealth building, losing time means losing money. If there is any chance of saving time, go for it. The main reason why people pay for services instead of doing the task themselves is to save time.
Each person has their own to utilize their time. The rich think of what their returns will be if they spend their time on building or buying assets, they have an asset mindset. They think in terms of Return on Time Invested (ROTI).
If you hire a maid to do your cleaning but then use the time saved to binge on Netflix, then you are wasting your time and money. Use your time to build assets.
The best successful investment decisions are based on financial goals rather than market shifts and timing. Education in finance gives you the ability to read and speak the language of money. This language will allow you to read between the lines, to understand the details and to make fewer mistakes.
Make a list of all your liabilities and assets you currently own.
In the beginning, it is okay to start with more liabilities than assets, but in order to become wealthy, you need to accumulate good assets as you progress. You do not necessarily need an MBA to become wealthy. What is important is that you have a clear view of all your financial goals. Clear objectives coupled with financial literacy will set you on a clear path to wealth building.
Today there is no excuse for being financially illiterate, there are 100s of free online resources teaching the ins and outs of the money world.
Having a mindset of making money … an asset mindset
With the right mindset, you can create a lot of wealth for yourself. These skills will make your journey faster:
- Accountability and analysis
- Analysing investments
- Understanding supply and demand
- Understanding Law
- Hustle mindset
- Seeing opportunity in any situation
- Risk-aware and averse
- Taking your time to commit but once you do follow through.
With this mindset, you will be able to build your wealth in any environment. Read more: Survival in wartime Yugoslavia
Assets and Liabilities
Assets and liabilities are the things that differentiate the wealthy from the poor. The difference between the wealthy and the poor is their understanding of wealth building. These definitions are crucial to your financial success. An asset is something which can earn you money in the future while a liability is anything that requires money from you to maintain.
Assets appreciate in value hence they are able to earn more income for you in the future, while liabilities, such as cars, require more money from you since they depreciate over time. When building wealth, assets generate income hence enabling the purchase of even more assets. The same income can also carter for other financial obligations. Liabilities, on the other hand, are expenses and obligations that require money from you.
Why you do not have more assets.
In the day-to-day activities, you require various possessions such as cars and smartphones among others, these do provide an income on the contrary they are expenses, but they are very essential in our lives. Marketing makes us buy more of these items than we actually need. Marketing makes the business owners rich and the customers poorer.
Adverts make you think that a 4×4 car is essential to take your kids from home to school, the truth is that you just need a simple car. Marketers (business owners) do this so you spend more on their products, leaving you with less money for investments. They become rich and you do not. Any advertising should be consumed with a lot of scepticism.
In order to build your wealth, you need to buy or build assets that will, in turn, generate more income for you. You have to choose the best assets that will eventually earn you more cash in the future. Defining best is hard because you require both financial knowledge and knowledge of the market. There is no guarantee that these assets will give you financial security, but neither does cash.
Assets are capital preserving or income-generating investments. It is important to distinguish between assets and liabilities among your possessions. This will enable you to build passive income much easily. Assets may include:
- Agricultural land
- Dividend-paying investments
- Business shares – either public or private
- Crypto Assets
- Dividend stocks. Stock investment is one of the best choices when it comes to investing in assets for wealth building. More cash is generated with minimal attention from you.
- Real estate. Real estate investment is a huge step towards wealth building. This is an income generating investment since it appreciates.
- Rental properties. Investing in rental properties will ensure the flow of cash on a monthly basis. This will help you purchase other assets among attaining other financial goals.
- Build your own passive income assets. Learn more: The best ideas from the best passive income books.
You may find it hard to buy assets if you are operating under the consumerism mentality and the cycle of debt. However, in order to build wealth, you have to overcome these shortcomings and never lose sight of your long term financial goals.
Types of assets
- Passive income assets – these are incoming producing assets such as rental properties. They produce a regular flow of money. Learn more: How to build assets with no money upfront.
- Capital preservation assets – these types of assets do not generate income but their price keeps up with inflation. Timing of the purchase of such assets makes all the difference between a profit and a loss. Gold, Art, Antiques, Crypto Assets, Stocks have kept up with inflation … at times.
Building more wealth
The more wealthy you become, the more difficult it is to keep the money you make. There are many thieves, traps, hustlers, taxes, lawyers and litigators out to get your money. The more wealth you accumulate the more of a target you will become. Your own measure of money will also change, the more you have the more tempting it will become to spend more money. Financial goals are what keeps people going and on track. Lifestyle inflation will keep you poor even though you are becoming richer every year.
The creation and management of assets
Investing in assets will ensure you get more cash in future. These assets, however, need to be created and then managed for the stable generation of income. Assets can turn into liabilities, when the expenses to maintain them is higher than the income they produce. For example, this can occur when the property cannot be rented and when taxes are not managed optimally or when you can no longer attend to business. Calculate these factors before you buy your assets.
Creating businesses and side hustles
- Owning a successful business is owning an eternal stream of passive income. That passive income will allow you to buy more businesses and assets, diversifying your risks further.
- You can acquire business by creating your own or buying your own. You can even invest in startups with great potential.
- For example, see our articles on
- There are various side hustles, depending on your skills, through which you can generate income. Such side hustles include driving an uber or lyft. Learn more: 41 passive income ideas for students
Eventually, the income earned from side hustles may be used to buy even more assets. Management of these assets, depending on the asset itself, may require your full or minimal attention. At least for the first years.
Managing an Asset needs to be done from three crucial perspectives.
- Through corporations. Corporations may be used as a way of saving taxes. This is possible through the corporation’s income tax that is lower than the individual income tax rate. Through these corporations, you are able to manage your assets at low costs.
- Through the law. Having the Corporation in the right jurisdiction, making use of the right subsidies, government handouts and bonuses.
- Through taxes. Using professionals to optimize your tax liabilities will give you an edge over your competition and increase your income.
- Management: Hiring the right managers in sales, marketing, IT and purchasing together with an excellent CEO is the easiest way to succeed.
A liability is anything that requires money from you. Once you spend this money it is gone forever, there is no way of getting it back.
People may at times find it hard to tell the difference between liabilities and assets. As a result, they may end up treating liabilities as assets.
For starters, you should not consider your house as your biggest asset. A house has many expenses water, electricity, property tax, mortgage, insurance and repair and maintenance costs, your house is not your biggest asset it is your biggest expenses. The house might appreciate, however it is very rare for the appreciation to carter for all the expenses. Equally, a house is also very important to your life. Your house, the one you live in, is a liability.
Another possession that is mistakenly categorized as an asset and yet it is not is your car. Your personal car is a liability since it requires gas and has maintenance costs with no promise of income in the future unless sold. Moreover, the car depreciates with time and therefore will be sold at a lower amount.
All the cash you use daily needs to be accounted for and the value be compared in terms of how many assets you could have obtained if you save this money over a 10 year period. A good example is a coffee that you take daily; the total value of each cup over ten years should be calculated to get a clear view of the total cost of these little expenses.
Generally, our possessions depreciate daily. The furniture, accessories, cars, clothes among others lose value as time goes on.
The wealth scale
The wealth scale tries to capture the mindset of different groups of people in terms of how they think about building wealth.
- The Poor: Liabilities are a way to capture social status, some of these liabilities are acquired through even more liabilities i.e. loans.
- The Middle class: Work is a means of maintaining a lifestyle, the long hours at work justify spending money on useless stuff. Pay rises tend to bring in even more expenses and liabilities. The middle class earns more than the poor but only a few of them focus on investing rather than saving.
- The financially aware: Have a basic knowledge of finance, compound interest and passive income. They work full time and have several side hustles. They are frugal, they save, they build assets and buy them. They make their money last as long as possible.
- They Wealthy: Could either have come by wealth through chance or hard work. Those who earned their wealth through hard work are much more likely to keep it.
Building wealth in different stages of your life
In your 20s, saving more than you spend is crucial. Setting yourself up for a good high-income career is crucial. Find the right partner, one that has good ideas about money as yourself. Create financial goals. Learn how to build passive income assets. Learn more: Passive income ideas for students
In our 30s, expenses are higher at this stage of your life. You might have a family and several dependents. Pay yourself first, meaning save for your nest egg first. Keep expenses in check and organise your highest expenses such as the mortgage. Keep money aside for a rainy day, so when it comes you do not touch your savings. Use all your options to max out your savings and tax reduction. Your 30s could be your crux to buy long term income generating assets, during this period you have the power to borrow money. Learn more: How life decisions impact your Passive Income journey.
In your 40s, Your retirement money is sacrosanct, do not use to lend yourself money. At this stage, your mortgage should be coming to an end.
In your 50s, In your 50s your career either as an entrepreneur or as an employed you should be reaping in the big gains. Make sure your health insurance is sorted and you keep an eye on the stability of your job.
The path to wealth building may seem impossible. However, if you have the right mindset, the required tools and clear financial goals, success is achievable. Emphasis should be on how you can earn passive income and still have minimal expenses. The ability to retire early is one of the goals of building wealth efficiently.
It is very important that you find a way to make money work for you instead of the other way round. This way you will be saving time, which can, in turn, be valuable invested in other activities.
To become wealthy, you will need the help of different people. The people you keep around you also contribute, either positively or negatively, towards your wealth growth. It is therefore crucial that you surround yourself with people who can actually help you in your wealth building endeavours. Self-discipline is also crucial in wealth building. Only through this virtue you can be set boundaries for yourself and how you invest in assets.
To build your wealth you will need to invest in assets and to invest in assets you need to be financial literate. Therefore, you should ensure that you are financially literate and well versed in investing. Only then will the path to wealth be clearer for you.
Wealth does not always come on a silver plate. All you have to do is have the right mindset, habits, an inner desire or force that motivates you, the right people around you, financial literature and proper time management. With all that you will be able to achieve your financial goals.
Finally, it is important to understand that money is not the only measure of success.