What is an Asset?

What is an asset?

When you think of the word asset, what comes to mind?  Most people immediately think of houses, boats, cars, etc.  They think of things that are worth money.  Sure, this is one way to think of assets, but here at Pointing to Retirement, we prefer to define the term “asset” in a different way.  We think of an asset as something that puts cash into your pocket instead of taking cash out.  This isn’t a new concept.  In fact, it was a concept popularized by Rich Dad Poor Dad author Robert Kiyosaki.

In case you’re curious, here’s a video outlining his idea:

What’s the idea?

The argument Kiyosaki makes is that individuals who accumulate wealth and individuals who don’t accumulate wealth usually have different definitions of what they consider an asset.

For individuals who don’t accumulate wealth, they make an assumption that anything of cash value is an asset.  However, many times these “assets” actually end up costing money to maintain.  That means cash flow out of pocket.  For instance, when you buy a house, you have cash going out of your pocket to pay the mortgage, taxes on the property, home owners insurance, etc.  You don’t have cash flowing into your pocket from that “asset”.  Hence, this material good is not as much of an asset as it seems.

On the other hand, Kiyosaki points out that individuals who accumulate wealth usually hold a view of an asset completely opposite to the viewpoint above.  They often times look at assets as things that provide cash flow back into their pockets rather than create cash flow out of their pockets.  So, for wealth accumulators, things like cars, boats, and houses (to a lesser extent) are more liabilities than assets since they regularly take money out of your pocket to own and maintain.

Now, this doesn’t mean don’t buy things like houses or cars.  Houses and cars are obviously important for day-to-day life.  This only means don’t frame your thinking about these things the wrong way.  Don’t think of them as cash producing assets when they are not.

Framing our thinking of assets the way Kiyosaki outlines is the approach we have taken here at Pointing to Retirement.  It has been tremendously helpful in the wealth accumulation journey.  We recommend this way of thinking to anyone looking to build wealth for the future.

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