Do You Know Your Asset from A Hole in The Ground?

Posted On 30 October 2021

Last updated on April 9th, 2024

When I was attending the University of Wyoming, I had the opportunity of visiting with a businessman one day. I was majoring in business at the time, and I was involved with a multilevel business as well. At one point he asked me an interesting question.

“In business you have to understand WHEN you make money. Do you make money when you buy something, or when you sell it?”

I answered, “money is made when the item is sold.” He told me I was wrong! He then went on to say that if you don’t have it, you can’t sell it. This is something that has stuck with me.

Buying Is Important

I have pondered this and there is a lot of truth to the concept that buying is when money is made in that if we purchase an asset at the right price, we will make money on that item! Say we can buy something for half price – it would be hard NOT to make money on that item! (Providing the item is sellable, or in demand!)

Let me give you an example of buying something for the right price. During the Great Depression in the 1930’s, J. Paul Getty was able to buy a hotel in New York City for less than what it cost to build the hotel. People ridiculed him for the purchase because not many people were travelling during the depression. Getty realized that the hotel was a great investment because he understood that the people would eventually travel again.

As we are heading into a time of higher inflation, buying at the right price is even more important. Even if it is not something we are going to sell, but something we are going to use – like food.

One of the ways we can take advantage of this is when we buy an item for our pantry for a good sale price and providing we will use it in a reasonable time or before it expires, we are getting a good deal.

Control Is Even More Important

Sometimes an asset is too expensive for us to buy when we want or need – like a house. When we agree to a good price on the house, and get a good mortgage rate on that house, we are winning! The mortgage on the house allows us to live in the house while we are paying for it.

Speaking of houses, it is also possible to sign a contract to purchase a house, and then sell that contract to someone else without completing the purchase of that house. And when we do this type of transaction, we get to keep the difference between the two prices – even though we never owned that house!

We can use debt to purchase an asset over time while we use that asset to earn money to pay for the item. This could be something like a car or tools for your own business. (Just don’t take on too much debt!)

Another example of controlling something without owning it would be running a drop-shipping business. Not having to deal with the inventory saves a lot of expenses and headaches.

Hard Assets

These are things you can touch – like gold, silver, or real estate. Assets like precious metals do not change in value – It is the paper currency that changes! History tells us that an ounce of gold will by a fine Italian men’s suit. In 1920 a fine Italian suit cost about $20. Now, a similar suit costs about $2,000.

Some assets such as real estate appreciate in value because demand increases or due to currency inflation. While we enjoy seeing the price increase on something we own, the trick is to not depend on this increase for your financial plan to work out. Appreciation should be the gravy that makes the investment that much better.

Not everything appreciates. Things like cars and electronics depreciate over time because they have a limited lifespan. While their price may decrease, that does not have to affect the value that asset has to you. A car with 300,000 km can transport you just as well as a new car – it’s just not as shiny or quiet!

Soft Assets

Sometimes we don’t see things like degrees and certifications as assets, although they are. A soft asset can also be a company brand or a person’s good reputation.

Now, a soft asset doesn’t have to be something with a certificate or degree. It can be something self-taught or learned informally. Cooking, sewing, or selling are some great examples of the non-certified assets.

These soft assets can allow a person to turn something not useful on its own (flour) into something desirable (bread or cake). It also allows a person to use a tool to complete a task or create something. These are definitely valuable assets!

Rich Dad’s Asset Definition

According to Robert Kiyosaki in his book “Rich Dad, Poor Dad”, an asset is something that puts money in your pocket. By his definition our house we live in is not an asset. While this goes against what accounting professionals define as an asset, I think it is a great way to look at finances differently.

For most people their house is the biggest (or most expensive) thing that they own. The thing is that a person’s house does not put money in their pocket, it actually costs them money because houses need to be maintained. For people to get money from their house, it has to be sold.

Wealth Storage

Hard assets can be a great way to store wealth. The asset doesn’t have to be something like precious metal or real estate. Having a full pantry is also a storage of wealth (and gives a sense of security as well).

Once a person owns a hard asset, it is theirs. It has been paid for. If the price of say flour increases, you don’t have to pay anything extra for that bag of flour you already own.

If there were a flour shortage, you have that bag of flour in your personal inventory to use as you need. Now, if you had several bags of flour, you could even trade some of that flour for something you need. To learn more about what we do for food storage, you can read about my 1-Up System.

Income Generation

An awesome thing about having assets is that they can put money in our pocket. We can use our skills to earn money. If we have real estate that we rent out, we can be paid from owning that. We can get paid dividends from stocks that we own.

While having assets is a good move financially, not all your assets will earn you more money. Some can save you from wasting your hard earned money.

Quality products

When we purchase quality products, we have something that will last, and it can allow us to do a better job or increase our safety. Cookware and knives come to mind. A sharp knife cuts better and is safer than a dull knife.

We used knives that were SO dull – and we used them for years. This past summer we purchased a set of Cutco knives. The amazing knives have definitely added value to our lives! Assets can be looked at in different ways. I find it beneficial to look at various sides of an issue. Let’s go and add some more assets to our lives!