What is an Asset?
Definition of Asset: “An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.”(IASB)
In other words an asset is something that currently and will continue to produce revenue. As you remember from Wealth creation part 1; we learned the first rule of wealth creation is to have an accumulation of surplus each year. Those accumulated surpluses can then be used to purchase assets or seeds.
Why is this important?
When a farmer plants their seed in the ground, it produces a harvest (revenue). So why can’t we just consume our seed, why can’t we buy more of the things we want. “I earned that surplus, so why can’t I use it for that new car, new T.V. or trip to the Caribbean? ” If you consume your seed you have nothing to plant. If you have nothing to plant you can’t get a harvest.
When we use our surplus to buy assets we create a new source of revenue!! So now, not only do we have our normal revenue; we have additional revenue being produced by these new assets. Later we will discuss different types of assets. You can view a sample Income statement here. The income statement lists some of the types of revenue that come from different types of assets.
The four steps of Seed Power:
- Your Surplus purchases a seed
- We nurture the seed as it grows.
- When the time is right we Harvest
- We spend, give, and reinvest our harvest.
You planted one seed and get to harvest 1000 to 2000 new seeds. Think about the exponential power of your seed if you plant the 1000 seeds. In this example, your asset requires additional effort and resources to produce your harvest. You would need to sell some of your seed to pay for the costs of planting, nurturing and harvesting your seed.
Different types of assets require different amounts of effort and resources to produce a harvest. A stock that pays a dividend requires almost no effort on your part. While a buying a snowplow to clear snow in the winter time requires a lot of effort. I will discuss these differences between passive and active income in later articles.
If you begin to use your income to buy assets and those assets create more income…. Think of your money working for you. You can go on vacation while your assets work and keep income flowing into your pocket. It is possible to not have to work and yet still have income. FREEDOM
Each dollar you receive has the potential to be a seed. Each dollar you have has the potential to work for you. When you consume that seed it is gone…
What are you consuming that could be a seed instead?
How much income are you receiving from your assets each year?