I want to have a wealthy lifestyle! Three major goals summarize this for me. First, I shall be able to financially cover all my living expenses without being dependent on income from a job. Second, I shall have primary control over how my time is allocated throughout a given day. Third, the value of my net worth shall continue to increase year over year without exchanging quality time with family and friends. I have a stretch goal to own only alpaca underwear, but that's another story. Having a strong and diversified financial portfolio is an important part of my financial stability. This includes having a diverse mix of real, tangible, and financial assets to provide security, stability, and peace of mind.
What are assets?
Assets are typically divided into real, intangible, and financial buckets.
Real assets tend to be things that you can put your hands on, such as real estate, oil, or precious metals. The value of real assets usually comes from the fact that they are limited in nature. Real assets are the main benefactors of the supply and demand paradigm. That's why the price keeps going up when the available supply is limited.
Intangible assets are non-physical items that have implied value. These tend to be items like contracts, patents, or other intellectual property. The challenge with these assets is that their value tends to be speculative without anything to anchor it to. Bitcoin and NFTs also fall into this category. These are both the easiest to create and the hardest to protect.
Financial assets are a mix of the two. For example, although you can touch cash (due to its' tangible form), it does not hold any value innately, since it is simply a certificate of the value of a target entity (the value is only implied). This can be a little confusing, but it is one of the things that makes financial assets distinct from their real and intangible brethren. This is also where the big money is made, literally.
How does this help me?
One of my earlier financial lessons was that if I wanted to generate and grow wealth, I need to have assets. As my assets increase in value, my wealth increases in value. Diversifying my assets ensures that the rest of the portfolio can still function if one or more of the assets goes bad. To maintain a healthy financial foundation, it is important to keep track of my financial status and make sure that I am keeping up with my expenses. I also need to be sure to make regular and accurate investments to grow my portfolio and protect my money. Financial assets can help people achieve their financial goals. Some common financial assets are:
Having cash in hand, savings accounts, or certificates of deposit. This is the most basic type of financial asset. These need to be relied on for everyday expenses or short to medium-term goals. While these are foundational, they tend to lose value over long periods.
Making investments in stocks, bonds, and commodities. These are financial assets that are designed to grow your money over time. Each has a different mechanism for how it increases in value, and each has its pros and cons.
Having credit cards and other lines of credit. Believe it or not, credit cards and lines of credit are a type of financial asset that gives you leverage. Leverage can be used to multiply purchasing power in the market. This is neither good nor bad in and of itself, but it can lead to serious consequences if misused.
What can you do?
My recommendation is to choose a mix of these and be aware of the risks associated with each. You must be disciplined with your use of these financial assets. Not keeping track and misusing your cash and credit can set you on a path far away from reaching your financial goals very quickly. Working with a financial coach (I am one; shameless plug) is a wonderful way to learn good financial behaviors and develop a plan to manage your financial assets.
To apply this knowledge today, get yourself a notebook if you don't already have one. Then make a list of all your financial assets. Then in a separate column, write down each thing that contributes to growing that asset and each thing that pulls resources away from that asset. If you do this, you will have started the baseline process and have taken a step toward achieving your financial goals.
Do you have any questions about financial assets? Ask in the comments or schedule a consultation to chat about it.
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