Most people don't want to talk about money or even think about money. But if you want to make money, you have to learn about money.
2 Kinds of Assets
There are 5 elements of money: income, expenses, assets, liabilities, and cash on hand (or in a bank account). Keeping cash on hand won't do any good, so you should invest it in assets, and avoid having liabilities. This is a widely accepted way of handling money. Here comes a trick. When a banker says assets, that means seizeable and resellable personal properties. However, Robert Kiyosaki says in his book, Rich Dad and Poor Dad, that assets are monetary instruments which periodically generate money. There is a big difference.
For example, according to Mr. Kiyosaki, a residential house is a liability because you need to spend money on it, such as property tax, maintenance, etc. But, if you rent the same house to a tenant, then it's an asset because the house generates income from rent every month. For bankers, it's always an asset. Regardless of whether you live in it or rent it out, the bank will seize and sell the house when the owner defaults on a mortgage payment. That's why banks are most interested in assets when they lend money. Which definition is right isn't the question. If you play by the bank's rule, the bank wins; if you play by Kiyosaki's rule, you win.
Running A Business
Here are some business oriented examples. When a telecommunication company puts fiber optic cable all over the country to provide internet access service, it is investing in an asset. The fiber optic network generates money month after month because the company charges monthly usage fees. On the other hand, a computer manufacturer making computers is making a source of income. They only get money when they sell the computers; a computer that has already been sold won't generate any more money. So, if you are starting a new website, pick a business in which you invest in assets, not income. It will be easier to make money that way. However, there's no need to panic if your existing business doesn't have any assets. Knowing the reality is important. Then, you can start looking for assets that can actually make you richer, not ones that can be seized by banks.
© August, 2009