Real Assets Vs Fake Assets


Have you heard the famous saying: a home is the biggest asset you can have? Why people tend to buy their own homes the first thing when they get a little more cash in their pockets? Or even they take loans and pay mortgages to own a home or a car? It’s not to be safe between four walls of their own, that is – of course – one of the reasons, the other one, the big one is, as they say: because your home is your biggest asset.

Let’s go back to basic accounting definition of an asset, which says: An Asset is a property that generates revenue, or: “an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.” [1]

Ops!

What is the revenue that is generated by my asset which is my home that I live in? Or my car that I feed every day to transport me around? I pay electricity bills every month, water bills, gas bills, maintenance bills and mortgage!

So, by definition, a house is NOT an asset, neither is a car.

They only can be an asset if they generate revenue, for example, if you rent a house that you own we can call it an asset, even if you take the money from the tenant to give it to your landlord and live the rest of the month on your paycheck, the objective should be increasing your assets to the limit of your financial comfort, until you don’t need your paycheck anymore, if you generate enough cash from the assets you own, if you can choose to work or not to work, and still live comfortably either way,  then you have real assets that – by definition – are generating cash for you and paying your expenses for you and making your life easier!

So, bear in mind that ANY property that takes from your pocket and not add to it is NOT an asset, a fancy car, a big house in the suburbs? a Beach house? Still NO!

[1] Wikipedia

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