THE quickest way for you to identify your best and finest asset is to look in the mirror.
You are your greatest asset, which shouldn’t surprise you at all. But if you aren’t careful, you might squander the opportunities life presents you with to forge your mind and body into a super-asset.
If you happen to squander those chances, well, you might turn out to be your greatest liability. That would be tragic.
The best personal finance definition of an asset and a liability I have ever encountered is that espoused by Robert Kiyosaki: “An asset puts money in your pocket and a liability takes money out of your pocket.”
When I first read those definitions by Kiyosaki, author of the best-selling Rich Dad, Poor Dad book and its numerous sequels, it was as though a bright light had been switched on within the dark cavern of my skull almost 20 years ago.
To better understand why those simple descriptions were such a big deal for me, you should know a bit about my early work history.
HOW IT STARTED
Almost 30 years ago, in 1988, I completed my university studies and graduated from King’s College, University of London with a joint honours degree in Physics and Computing.
I had moved to London from Malaysia in September 1982 as a wet-behind-the-ears 18-year-old embarking on my A-Levels.
In the six years between 1982 and 1988, I put down roots in the UK and wanted to try to stay on beyond graduation.
At that time, UK chartered accounting firms were hiring 10 per cent of all graduates from British universities. It seemed the most viable course of action for me was to secure a job in England.
So I diligently applied to 50 or more accounting firms in and around London but only received job offers from two of them: A small Jewish-owned firm in north London and the Basingstoke office of what was then the largest accounting firm in the world, KPMG. I opted for the larger firm.
Basingstoke is about 80km southwest of London. I spent a year there studying for accounting exams, working and growing miserable. Eventually I resigned, secured a short-term employment with a pharmaceutical company as a technical writer and then left the UK for good in October 1989 to return home to Malaysia.
The year I spent at KPMG taught me the basics of debits, credits, cash flow patterns, and assets and liabilities, as defined by accountants. But those lessons never made intuitive sense to me.
In contrast, almost a decade later when I came across Kiyosaki’s revolutionary, almost heretical ideas that enraged lots of accountants, his different approach to defining an asset and a liability purely by the direction of associated cash flow caused a huge aha! flash of comprehension in my non-accountant’s brain.
Kiyosaki caused consternation among the accounting fraternity when he wrote widely and with conviction that based on his direction-of-cash-flow definitions that the home we live in is a liability and not an asset because it sucks cash out of our lives.
Not surprisingly, Kiyosaki was lambasted by conventional accountants. Nonetheless, a growing number of financial planners have bought into the idea that the direction of cash flow reflects whether a possession is an asset or a liability.
In the hands of a car rental company owner, a fleet of vehicles can be assets if they cause net cash to flow into the company’s coffers after all staff and maintenance expenses are paid.
But if a wealthy collector fills his cavernous garage with classic cars that cost him money but don’t bring in any, then those cars are economic liabilities.
WHAT SHOULD WE DO?
For personal and family economic well-being and health, we should strive to — and hopefully succeed in — spending less than we earn. When we do so, we create consistent cash flow surpluses that enrich us and our families and causes we care about.
Such surpluses should not be hoarded blindly but rather allocated wisely into savings and investments geared toward generating even more wealth in the form of capital gains and passive income.
If you agree, what can you do to protect and care for yourself, your greatest asset?
Well, to begin with, you can use life and general insurance policies to transfer some of the risks of living and dying to insurance companies to help you gain a head start in wealth protection when you’re
starting out in life and also later on in life when you don’t want to risk losing what you’ve accumulated through hard work and sacrifice.
Secondly, you can reallocate a portion of your active income into a development fund for your mind that you use to buy books and magazines that make you better at your job and enhance your future capacity to think effectively and earn more money.
You should use a part of the same fund to pay for financial planning, business, economic and investment workshops to hone your skills in each key area of wealth building. And thirdly, exercise and spend money judiciously on preventive and corrective healthcare measures to strengthen your body so the engine you use to create long lasting wealth may keep purring for decades to come.
© 2017 Rajen Devadason
Read his free articles at www.FreeCoolArticles.com. Connect on rajen@rajendevadason.com, www.linkedin.com/in/rajendevadason and Twitter @RajenDevadason