Does Wealth Come From Owning Assets?

| Posted: 29-05-2008 | Comments: 0 | Views: 63 | Rating: (77)

(?)

The traditional definition of assets defines an asset as anything you own that has some monetary value. While this definition is correct and may seem logical, it is completely unhelpful when it comes to wealth creation. For example, the car sitting in your driveway or even the television sitting in your lounge room are assets under this definition. The wealthy are rich because they own lots of assets aren't they? But how are either of these "assets" helping you become wealthy. Well in short; they're not!

It is true that to be wealthy, you need to own lots of assets, but these assets must be of a certain type. In the world of wealth creation we need to define assets differently so that we can easily distinguish between assets that help you become wealthy like stocks or investment real estate and assets that don't help you at all, like the car and TV we just looked at. In terms of wealth creation we can define assets as either Good assets or Bad assets

Good assets, when owned, put money in your bank account. They are things like stocks, bonds, mutual funds, commodities, investment real estate, futures, options, hedge funds, and so on. All these assets have the ability to put money in your pocket. These are commonly called investments.

Bad assets take money out of your bank account. They are things your car, house, clothes, TV, stereo, mobile phone, furniture, CDs, Xbox, boat, and so on. Bad assets take money out of your pocket in three main ways. They cost you money to buy, they usually cost you money to maintain and they have an opportunity cost, which represents the forgone opportunity and benefits that could've been earned or received from that opportunity.

The types of assets you own as well as the amount of you own largely determines which wealth class you're in. The problem is that people often don't distinguish between good and bad assets. The table below summaries the connection between asset type and wealth class:

Poor: Little to no Bad Assets and No Good Assets (Investments)

Middle Class: Loads of Bad Assets and Little to no Good Assets

Wealthy: Minimal Bad Assets and Loads of Good Assets (compared to their wealth)

People have three main potential income sources:

1. Active - your salary
2. Passive - real estate, royalties from patents, license agreements and owned businesses
3. Portfolio - paper investments such as stocks, bonds and mutual funds

We can break down assets into three categories that map to the three possible income categories:

1. Individual - employed and self-employed
2. Passive investments
a. real estate, royalties from patents, license agreements
b. businesses
3. Portfolio investments - paper investments such as stocks, bonds, mutual funds and insurance

The wealthy are wealthy because they own passive and portfolio type assets that produce passive and portfolio income. They don't have to rely on individual-type assets for income, which are limited because individuals can only work so many hours. Passive and portfolio assets aren't limited in this way. These assets will continually provide income whether their owner works or not and can be owned to a theoretically unlimited degree, which means that the income they produce is theoretically unlimited. The wealthy know this, which is why they concentrate their energies on acquiring as much passive- and portfolio-type assets as they can.

The poor don't realize this, which is why they earn an individual type income and concentrate on getting marginal increases in their salaries that are always limited. The table below summarizes your class by asset ownership. What does your income and asset profile look like?

Rate this Article:

Current: 4 / 5 stars - 1 vote(s).

Article Tags: Wealth, Financial Freedom, Money, Making Money, Rich, Community, Wealth Creation Education

Article Source: http://www.articlesbase.com/finance-articles/does-wealth-come-from-owning-assets-431484.html

Print article

Send to friend

Publish this Article

Author feedback

About the Author:
Emlyn Scott is the founder of Rich1Percent, investor and wealth creation author. He is a wealth creation and finance expert with 4 post graduate qualifications and has amassed a multi-million dollar investment portfolio.

Submitting articles has become one of the most popular means of generating quality backlinks and targeted traffic to your website. Join us today - It's Free!

Article Comments

Add new Comment

The Power Of Leverage Will Make You Rich
By: Emlyn Scott | 21/05/2008 | Finance
Free Finance articles for use on your Finance related website. Find articles of the subject of Finance

Why Connecting With Others Is Key To Success
By: Emlyn Scott | 23/05/2008 | Self Help

Wealth Creation Success Means Taking The Right Action
By: Emlyn Scott | 23/05/2008 | Self Help

Wealth Comes With Understanding Income
By: Emlyn Scott | 23/05/2008 | Finance
Free Finance articles for use on your Finance related website. Find articles of the subject of Finance

Financial Statements: Wealth Starts With Your Personal Financial Statements
By: Emlyn Scott | 23/05/2008 | Finance
Free Finance articles for use on your Finance related website. Find articles of the subject of Finance

Your Wealth Creation Arsenal: The 7 Reasons Why Real Estate Is Your Essential Tool
By: Emlyn Scott | 23/05/2008 | Real Estate

What Percentage Of People Are Rich?
By: Emlyn Scott | 23/05/2008 | Self Help

Wealth Formula: The Secret To Wealth Creation
By: Emlyn Scott | 23/05/2008 | Finance
Free Finance articles for use on your Finance related website. Find articles of the subject of Finance

Got a Question? Ask.

Ask the community a question about this article:

Frequently Asked Questions

Help for possible fake money.
By: Colby | 29-09-2008
How do I verify that some Argentina Pesos that I have are not counterfeit money. I have one 500000, 50000, 10000, 10000, and 5000 Argentina Pesos. I also have one 5000 Argentina Pesos Argentinas.

Viz Global Financial Lenders - Clam Jackson
By: Ladeezip13 | 29-09-2008
Can anyone help to verify if there is a Viz Global Financial Lender company in the UK? The lenders name is Clam Jackson. He says he's licensed and registered.

Ganz Birthstone Cross Pin
By: Loretta | 29-09-2008
Ganz Birthstone Cross Pin

Are Roth IRAs Insured?
By: Libertybelle | 29-09-2008
Are Roth IRAs FDIC insured? If not, guess its too late... :-(

Yes or No?
By: sendmelord24 | 29-09-2008
Just put Yes or No if you would give $1 to help feed starving people around the world and have a chance to win a $1,000,000 yourself? Thank You So Much!

Is there a chip resetter for rx595 ?
By: guenter | 29-09-2008
is there a chip resetter for rx595 ?

Q&A Powered by:

Latest Finance Articles

Understanding Debt Consolidation Loans
By: Richard Greenwood | 07/10/2008
It can be all too easy to end up in debt and especially during the current times of financial uncertainty you may find yourself unable to make repayments. Consolidating your debt can make your debts easier to manage and lower your interest charges meaning you become debt free faster.

Credit Card Comparison
By: Richard Greenwood | 07/10/2008
Credit card offers are everywhere and all claim to out do each other. How do you cut through the marketing talk and understand the key features you need to compare to make an informed decision. Find out with this informative article on credit card comparison.

Shopping For Auto Insurance
By: Brenda Williams | 07/10/2008
When you get your license for the first time before you begin driving you need to get car insurance as it's mandatory to have car insurance while driving. Car insurance can be rather expensive, especially for new drivers which is why you'll need to ensure that you're getting the best...

Taking 100% Responsibility - the Prerequisite for Creating Money & Marriage Success
By: Leslie Cunningham | 07/10/2008
It's a simple concept, to refrain from blaming and complaining, and yet it's a challenge to change a habit, especially one that everyone else has. Like sticking to your diet, when everyone else around you is enjoying chocolate cake. Keep reading and you'll find out how this relates to your marriage and finances. Then I'll share some action steps to help you become 100% responsible for your life.

Retirement Income Investing and Your Portfolio
By: Steve Selengut | 07/10/2008
Brokerage firm monthly statements are designed to promote either fear or greed, depending on the current market environment. Nowhere on your statement can you find numbers that report your net investment, your total working capital, or your true asset allocation. Current and projected income numbers are given little attention

Buy to Let Investors Get a Boost
By: Parmdeep Vadesha | 06/10/2008
Buy to let UK investors are in a prime position to take advantage of a new government plan to spur property market activity. The scheme aims to permit property buyers to buy properties worth up to

How to Buy a Repossessed Property for Below Market Value
By: Parmdeep Vadesha | 06/10/2008
Buying a repossessed property is what matters for investors who are keen on reaping high profits. But even with the advantages it poses, there are certain aspects you need to be aware of before you start on the task of acquiring your next property cheaply.

Brits Should Ensure They Have the Cheapest Energy Supplier
By: Abbi Rouse | 06/10/2008
With energy prices escalating steadily, consumers could knock considerable amounts off their utility bills by switching from their areas default supplier.

More from Emlyn Scott

How To Stay Motivated On Your Wealth Journey
By: Emlyn Scott | 30/05/2008 | Self Help
What is motivation? There is no universal definition of what motivation is, yet all of us intrinsically know what it is. If you speak to people on the street and ask them what they think motivation is, you'll likely get responses like "it's what drives you" or "it's what pushes you"...

How Do You Estimate Your Normal Retirement Requirements?
By: Emlyn Scott | 29/05/2008 | Finance
Standard retirement plans are quite simple and apply to the middle class and to a lesser extent the financially independent. The following process would apply almost entirely to the middle class pension savings only (the financially independent would have extra personal holdings of assets such as bonds, stocks, mutual funds...

How Do You Sell Options To Generate Amazing Returns?
By: Emlyn Scott | 29/05/2008 | Finance
In this article we will look at how to effectively implement this strategy to increase your wealth. But before we do it's important to recognize that this strategy offers you the benefit of cash returns and easy access to your capital. Why are these things so important? Cash returns: Let's look at...

How To Create And Calculate Your Ultimate Wealth Target: Your Vision Statement
By: Emlyn Scott | 29/05/2008 | Finance
The process of creating and calculating your vision statement is a 4 step process: STEP 1: Creating your vision statement: Creating your vision statement should be a soul-searching discovery, not a clinical exercise. Your vision isn't something you can formulate and write in one sitting. You'll create it over a period of...

Creating Cashflow: Using Covered Call Strategy To Pay You Cash
By: Emlyn Scott | 29/05/2008 | Finance
I'll assume in this article that you already have the basic understanding of stocks and options. If not then it would be worthwhile to read about these investments first. The covered call strategy brings together stocks and options to form a third strategy...a cash flow strategy. The covered call strategy...

Wealth Formula: The Secret To Wealth Creation
By: Emlyn Scott | 23/05/2008 | Finance
The Wealth Formula succinctly depicts the components that are necessary for you to create real wealth. The Wealth Formula is shown below: M+K+P+A=W It identifies four essential wealth creation stages and the relationship between them. These are: Wealth Mindset Wealth Knowledge Wealth Planning Wealth Action It links each of these four component through the plus sign, +,...

What Percentage Of People Are Rich?
By: Emlyn Scott | 23/05/2008 | Self Help
The 5% club: The Capgemini and Merrill Lynch 2006 World Wealth Report found there were 8.7 million millionaires in the world-2.9 million in America, 2.8 million in Europe, 2.4 million in Asia, 300,000 in both the Middle East and Latin America, and 100,000 in Africa. Given there are 114 million households...

Your Wealth Creation Arsenal: The 7 Reasons Why Real Estate Is Your Essential Tool
By: Emlyn Scott | 23/05/2008 | Real Estate
Real estate (both residential and commercial property) is perhaps the best way for the average person to generate wealth. There are many reasons why real estate is such a brilliant way to fast-track your wealth plan and why it's so popular with those who want to become wealthy or are...

Article Categories

Article Marketing

Article Notepad

Stop Duplicate Content

Term Papers

Need Help?

Sign up for our email newsletter

Receive updates, enter your email below

Use of this web site constitutes acceptance of the Terms Of Use and Privacy Policy | User published content is licensed under a Creative Commons License.
Copyright © 2005-2008 Free Articles by ArticlesBase.com, All rights reserved. (3.64, 16)

Does Wealth Come From Owning Assets?

Article Comments

Related Articles

Got a Question? Ask.

Latest Finance Articles

More from Emlyn Scott

Need Help?

Site Links

Webmasters

Business Info

Sign up for our email newsletter