When thinking about your financial future and creating the life you want, it’s important to fully understand what it means. The term “wealth” may hold different meanings for different people, but let’s discuss its “true” meaning, at least in terms of the English language.
Wealth—as defined by Merriam-Webster—holds the meanings below:
- an abundance of valuable material, possessions, or resources
- abundant supply
- all property that has a money value or an exchangeable value
- all material objects that have economic utility
- especially: the stock of useful goods having economic value in existence at any one time
Put simply, wealth is having an abundance of assets that hold economic value.
The truth is that people don’t become wealthy by simply working their entire lives. They must turn their income into assets in order to build their wealth and secure their financial future. If you’re just starting out, it’s important to understand, and make a plan, to build your assets.
This article talks about asset building and how you can achieve increasing your assets.
Net worth and your assets
Building your assets means increasing the amount of money you have by acquiring things of present or future monetary value. Your assets factor into your net worth – which is your assets minus any liabilities or debt you may have. Your goal should be to increase your assets while reducing or maintaining your debt.
It’s important to understand that building assets take time and strategy, and one asset builds on another. For example, property ownership is an immensely valuable asset, but it takes money to purchase land/home.
Why is asset building important?
Building your assets is more than just increasing your net worth. Increasing your wealth can improve your quality of life and even those of your descendants. For example, you could save for emergencies or for your child’s college education. Having access to more money gives you the opportunity to do these things, and that access comes from assets.
Types of assets
There are three popular categories of assets that we will discuss: financial assets, tangible assets, and intangible assets.
Also considered liquid assets, financial assets can be easily converted into cash. They represent ownership of an entity or claim to future payment, and their value can fluctuate based on market conditions.
Here are some examples of financial assets:
- Cash equivalent (such as a savings account)
- Certificates of deposit
- Retirement account
This type of asset is physical in nature and includes:
- Homes and real estate properties
- Fine art and collectibles
- Precious metals and coins
These assets aren’t physical in nature and are also not necessarily financial. Examples include:
- Intellectual property
- Patents and copyrights
Appreciating and depreciating assets
When considering which assets to invest in, it’s important to understand how assets can change in value over time. Appreciating assets are things that increase in value over time. Homes and land are considered appreciating assets.
Depreciating assets decrease in value over time. An example of a depreciating asset is a car. The car you buy today will be worth less when you decide it’s time for a new one.
It’s important to know which assets appreciate in value and which depreciate so that you can focus on investing in assets that increase in value.
How do you build your assets?
As mentioned earlier, asset building takes time. The sooner you start building your assets, the more time you’ll have to acquire them and for their value to build. Here are a few ways to start building your assets today.
1. Increase your income
Cash is an asset, and increasing your cash is a simple way to build your assets. You can increase your cash flow in several ways, such as asking for a raise, applying for a promotion, or starting a side hustle. The goal is to increase the amount of cash you have to acquire more assets.
2. Save your money
Remember that savings accounts are also assets, and they let you save for expenses such as emergencies or plan for the future by saving for retirement. The sooner you start saving your money, the more time it has to grow.
3. Invest in the stock market
Once you have acquired more cash, it’s best to put it to work. You want to invest your money in a place where it will grow over time. One place for long-term investments is in the stock market.
4. Invest in real estate
Because of the scarcity of land, the value of real estate continues to grow. Investing in real estate is a great way to increase your assets.
5. Reduce your debt
All your work building your assets will be done in vain if you don’t simultaneously work to reduce your debt.
All of this can be overwhelming. Where do you start? How do you stick to a plan? Building a plan to increase your wealth is what we do. Everyone’s circumstances and financial goals are different, so their path to building wealth won’t look the same. We partner with our clients to create an investment portfolio and financial plan that works for them. If you’re ready to start building your assets for a more secure future, give us a call.