Assets are entities you invest in to get the cash flow in your pocket. Eg- Education.
Vinita. Pal
Hello Folks! Namaste!
As promised, here I am with yet another financial literacy lesson. In my opinion, this lesson is one such lesson that will require a little extra attention because remember what I mentioned in my previous lesson? If you haven’t read the previous lesson, you can read it here. Towards the end of the previous lesson, I mentioned, being wise with your choice of assets is very important as they can make or break a deal.
In today’s lesson, we will focus on the following important pointers.
- What are assets?
- What is the true nature of assets?
- Busting common myths about asset
- Understanding the minuscule difference that differentiates an asset from liability.
Let’s get started. To being with I would want all of us to do a small exercise. For this, you will need a book and a pen. Now that you are ready with your book and a pen, take a few moments and think of all the entities that according to you are assets for you and list them one by one in your book. Welcome back to reading, I hope you really must have put serious thought while doing that exercise. Do keep the book with you because as we proceed toward the end of this lesson you might consider making changes to your existing list.
“You are an asset to us or to our company”, you all must have had experience hearing this many a time from the company owner or in simple terms from an employee, right? And might have felt proud about it on a certain occasion because such comments have the tendency to bring to your realization your worth of productivity. If you look through other lense you will see, your employee has labeled you as an asset or you have been labeled as an asset because you are the one involved in the working process and it is because you are working that the income is getting generated which is not generating cash rather make the cashflow in the account of the company. Does that make sense? In a simple sense, you are an asset only because you are instrumental in generating cash and making it flow into the company’s account. The bottom line is assets are entities that make the cash flow.
This brings us to our second pointer which is the nature of assets. In a real sense, the true nature of any asset is that they generate cash that keeps flowing in your pocket, and if your pocket can’t hold much then in your bank account. Joke apart, In a real sense any entity can be called an asset if that entity has the potential to generate cash and make it flow in the best of your interest. With this, we have come to our third point of busting the common myths about assets. Investing in an asset requires lots of scrutinizing efforts on our part but believe it or not most of us overlook it let’s say, out of habit or at times may be due to a lack of access to financial literacy. If you consider equipping yourself with financial literacy do check this out. Coming back to scrutinizing efforts before investing in an asset means weighing the pros and cons, understanding, and inspecting the value, nature, and it’s potential to generate the cash flow out of the asset that you consider investing in. After scrutiny, if it comes out that the asset lacks the potential to generate cash flow then it’s not worth investing in it, In the simple sense that the entity cannot be called an asset but a liability.
Before we move on to the last point of Understanding the minuscule difference that differentiates an asset from liability. You might consider going back to the book that is there with you and might want to upgrade it or if not and still want to develop a concrete and more solid understanding of assets to gain more insights before upgrading your asset list, as an inquisitive and progressive learner my suggestion is to check out –Rich dad Poor dad.
This book in my knowledge is the best book to bust the myths about assets. As an inquisitive learner, I can vouch for rich dad and poor dad for the reason that the content in the book is purely for financial educational purposes so don’t be surprised if you come across a concept supplemented by a diagram that makes the learning a lot easier to understand, interactive and engaging as well.
Having said that, let’s talk about our fourth point- Understanding the minuscule difference that differentiates an asset from liability. After reading rich dad poor dad I have found that there is a minuscule loophole that is hard to see by most of us in the true sense, no one is to be blamed for this because it lies hidden in our thinking and mindset to not to give much thought to asset and liability before, during and after investing as a result of which we struggle to make the cash flow for us and most of the time we find our investment in the stagnating state which doesn’t result in any cash flow. The point that I want to make is that the loophole that we miss to see and that brings about the distinction between an asset and a liability is where the cash is flowing. Is it flowing in your pocket? Or going out of your pocket? If it’s the first then it can be called an asset, if the second then it’s called a liability. Understanding this simple distinction between asset and liability can save us from making any investment mistakes.
So next time you hear someone saying, “You are an asset.” be proud about it but also make sure the one you are working with should value your asset as well. Having said this doesn’t mean I am against being called an asset but working with the one who values you as an asset and also YOUR asset is always a win-win and a flourishing situation.
Keep reading! Keep learning until next time.
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