As we looked at the asset classification system over the previous blog posts, you may have noticed that some assets might be put into two different categories depending on the way that they are used.
For example, did you notice that we listed a car as being both a “terrible” and a “good” asset. How can that be? The difference is in the way that the car is used and how it affects your wallet each month.
A car that you buy brand new and then use primarily to drive around town loses its value quickly and sucks cash out of your wallet each month (in the form of insurance payments, gasoline, and repairs). On the other hand, an antique car that you rent out for special events holds its value over time and puts more money into your wallet than it takes out. That’s how the same asset can be either “terrible” or “good” depending on how it is used. And if you want that asset to get nudged even closer to the “great” category, then consider hiring out that antique car to a company that, in exchange for sending you a check each month, will take care of finding clients and maintaining the car. Now you are making money literally without having to lift a finger!
The education in this blog series has been valuable. But it shouldn’t be viewed as empty theory. After reading , you should be motivated to take action! For example, as you look at your current investment portfolio, do you find that it is mostly made up of “terrible” and “okay” assets? If so, don’t worry. Chances are that you invested your money in certain assets because everyone told you that those assets were the best way to go. After all, how many times have you heard the phrase “my house is my greatest asset”? And the deceptive way that individuals talk about their “net worth” distorts the real effect that certain items have on their wallet month to month.
For example, many people will tally up their debts and then calculate the amount of equity they have in their home and how many cars they have and brag about a “positive” net worth. Well, that may look good on paper, but how many of those same individuals are struggling month to month to make the minimum payments on their credit cards? And how many of them are absolutely terrified when they think about the future?
I hope this information has got you thinking in a new direction. What makes an asset worth your time and money is not how good it looks on paper, but on whether it will hold its value over time and whether it will put money into your pocket or take it out. So what should you do if your investment portfolio isn’t all that it could be? How can you move from a portfolio full of “terrible” assets to one full of “great” ones?
The answer is to use the Wealth Wheel process – something we’ll talk more about in a future post!