5 Ways Assets Help Your Financial Health | CapWay
- Assets are anything you own of value that can be sold.
- Some assets are more flexible than others.
- Accumulating assets allows you to live the life you want in the future.
If you listen to any financial advice, whether it’s through books or podcasts, you’ve probably heard them talk about the importance of accumulating assets. To keep things simple, assets are anything of value that you own that can be sold.
The more assets you have that can earn you income, the better off you are. We are not saying that money buys you happiness, but there are undeniable benefits to accumulating assets that will help you lead a financially flexible lifestyle.
Now, are assets really anything that you own that can be sold? Like, is the pair of headphones you have listed on Facebook Marketplace an asset? Technically, yes, that is an asset, but if you want the ultimate benefit of accumulating assets, having a closet full of headphones to sell is not the best route. So let’s look at what we usually mean by assets.
Examples of Assets
Cash is an easy asset because of its liquidity. It is easy to transfer and use and determine its value. So, the first kind of asset is simply how much cash you have on hand. If the answer is basically zero, now is the time to reconsider how you can change that.
A savings account can be used for several different things. But the main use of a savings account is to store cash. A savings account can be used for an emergency fund, a sinking fund, or vacation savings. Having cash in your bank account means you have readily available assets.
Investment and Retirement Accounts
Next, you have investment accounts, which include retirement accounts, taxable brokerage accounts, and permanent life insurance policies with a cash value. Investment accounts are less liquid than cash, meaning you can’t use them as quickly as you can use cash on hand, but they are a rather flexible way to grow your assets over the long term. An investment account is any account where you put money and expect it to grow over the long term.
Investment accounts usually invest in stocks and bonds, but REITs (Real Estate Investment Trusts), crowdfunding, and cryptocurrency are rising. The types of accounts that are usually considered investment accounts are taxable brokerage accounts, retirement accounts such as the 401k, 403b, or the IRA, investments with crowdfunding tech companies, and cryptocurrency exchanges.
Investment accounts can put your money at risk of loss, but over the long term, your assets should grow to allow you greater financial flexibility if invested well. Ask your financial advisor how investment accounts can increase your income and prepare you for the future.
Recommended Reading: Investing 101: Real Estate, Stocks, and Bonds
Your House and Real Estate
Your home and other pieces of real estate that you own are also valuable assets, but only when they can be sold for more than you owe. Also, it is important to remember that because a mortgage pulls money out of your pocket reliably every month, it reduces your financial flexibility. That means it is important to have other liquid assets or income to offset this financial burden to get the long-term benefits of owning real estate.
The long-term benefits of homeownership and real estate, however, are immense. Over time you get the benefits of loan paydown and appreciation on your home. In other words, when you sell, the money in your pocket increases dramatically.
There are also great tax benefits to owning a home and other types of real estate. Ask your tax professional about how this can help you.
Recommended Reading: How to Invest in Real Estate for $1,000 or Less
Other Valuable Items You Can Sell
Assets can be almost anything. If it can be sold, it can be an asset.
Of course, you must be careful with selling any asset. Your car is an asset but also a quickly depreciating asset, so the resale value drops yearly. Artwork is an asset, but there is no guarantee that a particular piece of artwork will increase in value.
Collectible items like Beanie Babies were an asset worth thousands of dollars until they weren’t, but other collectibles are valuable. Owning valuable items you can sell is great, but just be careful not to put all of your financial eggs in this one basket.
5 Ways Assets Help You
So now that we understand what assets are, the question is, why do they matter? Here are five ways that assets help your daily financial health.
1. Cover Emergencies
The first way that assets help you is to cover emergencies. When you have to get an emergency appendix removal on a high-deductible insurance plan, you must come up with some cash fairly quickly. Having assets to draw on makes this easier.
Usually, the first line of defense is an emergency fund. Still, you can also draw on other accounts and sell valuable items if needed to pay for an emergency. Having the funds on hand to pay for an emergency instead of going into debt will benefit your financial and mental well-being going forward.
Recommended Read: Assets vs. Liabilities
2. Live Off Them Later
By growing assets now, you are making it possible for you to have a comfortable retirement. To make an obvious statement, social security is not enough to retire comfortably or even at all in some cases. You will want to have more than that meager existence when you retire, so it is vital to put aside more now. If you are mindful of your assets, you’ll be able to retire with more than enough to enjoy the decades of your life after retirement.
3. Live Off Them Now
But what if you’d rather retire sooner than later? With enough assets set aside, you can live off them. Early retirement sounds like a pipe dream to many people, but if you look into the basic math behind it, it is actually quite simple. More practically, if you have assets set aside, you can handle any short-term storm, such as a surprise layoff or disability, without worrying about where your next meal or rent payment will come from.
4. Pass Them Down
If you don’t use all of your assets in this life, you can pass them down. This can be giving your assets to your children to give them a leg up in life or giving them to charity. Growing your assets now shouldn’t be perceived as a greedy money-grab method but as a means to help others.
5. Enjoy Live
Lastly, when you have more money in your pocket, you don’t have to worry about unemployment, paying your rent, or covering medical bills. You can enjoy life more, such as going on vacation debt free or spending your time on passion projects instead of a mundane job. These tangible benefits of accumulating assets make all the difference.
The Money Wrap-Up
To put this entire article into one simple sentence: assets give you options. The more assets you have, the more flexibility and freedom you have to make your own decisions and control your own life. You can handle anything life throws at you and overcome it with ease. Owning assets is financial freedom.