In previous posts, we have talked a lot about strategies for revenue generation and expense reduction, which fall under the income statement. Today we are flipping over to the other side of the financial statements and begin to strategize around one of the levers that make up our balance sheet. Yes, you guessed it – Assets. Sometimes I feel like I am the only one that gets excited about financial statements. OMG, Guys, Am I weird?
For a thing to be called an asset, it must have three properties; ownership, resource, and economic value. So is the item yours, or do you have control over it? Can it create wealth for you? And can you sell it or exchange it for something of value? This is why a personal car is not an asset because all three questions do not hold true for a car.
Assets can are classified into three buckets; convertibility, physical existence, and usage. But for personal financial analysis, I will touch on just convertibility. Convertibility considers whether an asset is current or fixed. Current assets are assets that are cash or can be converted to cash within twelve months. To read more about the value of current assets click here.
Asset ranked by importance
Disclaimer: this is my preference, does not have to yours
Education is considered an intangible asset, much like intellectual property for companies, in my opinion, this is one of the most valuable assets. I know Elon Musk says BSc. is of little value to him, and who am I to contradict Almighty Elon, but please be informed that the fastest way out of poverty is education – JFK. Pay to learn a new skill, go to school, listen to podcasts, read articles that shape your mind and inspire you to want more. The ROI (return on investment) for this investment is immeasurable as its value sips into the decision-making process of all your other investments opportunities.
Secondly, ensure that the people around you educate themselves too. “The cornerstone of democracy rests on the foundation of an educated electorate” – Thomas Jefferson. This infers that autocracy become the valid option when you are surrounded by illiterates. Since this is not a political piece, what I allude to, is that if you are the only educated person in your circle, they will naturally look to you for leadership and that $hit is draining (pardon my French), ensuring that the people in your circle are educated democratizes their need for just you, and gives you the leeway to focus on you.
There is something about owning property that makes me feel connected to mother earth. I can not explain this feeling, but it is invigorating. When I bought my first land, I will find it on google map, zoom out, and say to myself “in this whole world that dot belonged to me” 😊. Aside from the rush that I describe owning a home cater to the most expensive of the three basic human needs, making it a critical hurdle to financial freedom. Where you rest your head at night must be secured. I am not saying you need to buy a house in downtown Toronto or Lagos where you work, but a starter house in a suburb where things are cheaper may be a good entry point into the real estate market. As your wealth grows, you can graduate or substitute your starter house for a bigger, better more urban house.
Your Time and Energy
Your time and energy are intangible assets as it is expected that you exchange them for a job that pays or a business and side hustle that hopefully yields a return. Categorizing your time and energy as assets help you evaluate what you spend your time on and what you allow to sap your energy.
There are a plethora of opportunities to invest in, from shares, bonds, and treasury bills to real estate and start-up opportunities. The expertise to building an investment portfolio is a delicate art that people have died and killed for, but it is possible and important for financial freedom. So fear not my OGs in subsequent posts, we will dive into this investment ocean together.
Lastly, your cash is an asset that should be allocated and not spent, this mindset is critical to expense optimization.
What are your thought and preferences on assets, #Comment, #like, #Subscribe