This is a powerful idea that Robert Kiyosaki puts across in his bestselling books Rich Dad Poor Dad. It is an idea that is so easy to understand and implement yet so hidden to the majority. This article will teach you how to get a free asset. However, let us understand several things about assets.
What is an asset?
An asset, according to Kiyosaki, is something that puts money in your pocket. In short, an asset is an income-generating investment.
Rich people buy assets, the middle class buys liability thinking that they are assets while poor people buy liabilities without thinking of assets.
Examples of assets include real estate, stocks, precious metals, public service vehicles, businesses, government bonds, etc.
Many people buy liabilities thinking that they are assets. People buy personal cars and build expensive houses terming them as their greatest investments. This is what keeps the middle class in a state of financial stagnation.
Read our article on 10 key financial definitions everyone should understand
Different classifications of assets
They can be classified differently. Let us look at several ways of classifying them.
Tangible versus intangible
This is the most common classification.
Tangible assets include everything that you can see or touch. They have a physical substance. Real estate, precious metals, businesses, etc. are all in this category.
Intangible assets cannot be seen or touched. They include intellectual capacity, intellectual property, your connections, your mindset, etc.
Long term versus short term
A long term asset is one that is held over a long period. They are not intended to be disposed of soon. This includes pensions funds, long term bonds, stocks, real estate, etc.
Short term assets are those that are bought for purposes of being disposed of soon. This includes business inventory, short term bonds, short term stocks, etc.
This is an asset that irrevocably depreciates.
These assets should only be bought after doing serious financial calculations. They include cars, plants, etc.
Current assets are those that can easily be converted to cash.
These include business inventory, short term investments, receivables, deposits, cheques, etc.
These are assets that are purchased for the long term and continuous use. In business, they are known as PPEs (Property, plants, and equipment).
They include buildings, furniture, machinery, etc. These things have to be used to make money for them to be termed as assets.
How to get a free asset
It is possible to get a free asset using an existing asset. This is very easy.
If you invest 1 million in stocks that end up appreciating by 10% every year, you will have stocks worth 1.1 million after one year. After 2 years, the value of the asset will be 1.21 million.
After 5 years, the stocks will be worth 1.61 million. This is the power of compounding.
If you sell stocks worth 1 million to recover your initial investment, you will have stocks worth 610,000 left.
This is a free asset. It is an asset that you have gotten over time.
After withdrawing the initial investment, you can keep the free asset and invest the initial capital in another investment vehicle.
You do not have to mind about the free asset because it is free after all. Even if it depreciates, you do not have much to lose.
You can also keep the free asset for the long term. This free asset will give you others over time. This is how wealth is created.
Assume that you buy a piece of land worth 1 million and it appreciates to 1.2 million after one year. You can sell the land at 1.2 million to recover your initial investment of 1 million.
You can then reinvest the 200,000 by buying another piece of land. This is a free asset. You can then invest your 1 million in another investment project.
This can be replicated in all forms of assets. It is an investment strategy that makes the many rich.
If you keep accumulating these free assets, your net worth will skyrocket. This is how one million becomes one billion over time.
Understanding assets is an important step in wealth creation. Understanding how to get a free asset is also a crucial step in the right direction.
In all you do, you have to keep accumulating income-generating assets. This is how to get forward financially.
Founder/ C.E.O- Wealthy Wolves Consulting & Giimark Ltd/ Best-selling Author/ Speaker.