More Assets, Fewer Liabilities

The plan is simple:

  1. Define assets and liabilities on your own terms
  2. Acquire assets and decrease liabilities.

Don't let anyone or anything define the terms for you. If you can't honestly clearly define it to yourself, then I hope you have good friends, advisors, and luck. Here's how I summarize assets and liabilities.

Cash Flow diagram

Many things that you legally list as assets are actually expenses (or even liabilities) unless you actually intend to sell them or use them for financing. This includes items like cars, jewelry, and possibly even your own home.

Good Assets

"Good" assets are the kind that take less work, less involvement, or involvement that you enjoy. Remember Tom Sawyer's words: "Work consists of whatever a body is obliged to do, and that Play consists of whatever a body is not obliged to do.") Good assets can include the following:

EG: If you want to buy stocks, try looking into field that interests you so you won't mind doing the research for the stocks.

Look for assets that are scalable with increasing returns. Working more to make more is sort of scalable, but you get the same return for the work you do. If, on the other hand, all you have to do is pay others some more money and they can make you even more money, then that increases your wealth without putting out much more effort, i.e. your return has increased. This concept is especially applicable to the information age. The dot com companies in particular scale well.

EG: Get income generating real estate and get a good property manager. That way you can buy more income generating real estate without having to scrub more toilets personally.

You yourself are your greatest asset. You can spend money, time, or effort on yourself and get more back than what you put in. Typically this is done by educating yourself and developing your career. You should try to do things that you genuinely like. You don't work for money; rather the money you make works for you.

Pay yourself first. If you don't, you will probably tend to not acquire assets. We all tend to be too busy to take care of the important thigs such as our health, wealth, relationships, and household chores.

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