After reading the book Rich Dad Poor Dad, most people come under the conclusion that owning assets is better than having liabilities. That is so true. “The rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.” This is at the point where you have to wonder if you acquire enough assets would it be better than working a job.
What are Assets?
Quite simply assets are items that contain an economic value to an individual or company.
So what are assets and how can we acquire more of them?
Assets are things that generate income. When I go into work, the asset that generates income for me is my skill. Once that skill is outshined by others my asset is no longer valuable to me.
Real estate can be assets since they produce an economic value.
Stocks are also assets. They are the individual pieces of a company owned by the people that hold the shares.
These are all assets. They help produce economic value and income for people like you and I.
So how can owning assets be better than working a job?
Passive Income creating wealth:
The simple answer is passive income.
As I sleep, I am not working and therefore actively I am not creating any income. The sad part is that many people do this. Their sole income comes from working. When you stop working the income stops coming in.
I am all about creating passive income. Passive income is the money or income coming into your pocket through the means of not doing any work at all. It is all done passively.
If you own stocks, and the stocks produce a dividend, which is a share of the profit from the company, then the stocks are producing income passively for you.
The same can go for owning real estate that produces income. If you were to own a place and rent out the property, you will produce a flow of passive income.
This passive income in the long run will help create more and more wealth, by the use of compounding interest. It will also allow you to not have to rely on working as well.
Compounding interest is the interest or the rate of return of an asset that is compounded. If your portfolio generates 7% annually and you compound it for the next 30-40 years then it could be a big number.
Let’s say you have $100,000 saved in investments. At 7% for 40 years that $100,000 will be worth around $1,497,000. That is a lot of money. That is money your assets have produced through compounding interest.
Owning Assets can make you wealthy
Owning assets is a major thing that rich people often do. If they have assets producing passive income they will not have to produce active income as much, and then they will be able to concentrate their mind and skills on other avenues of life.
Rich people would rather own income producing assets than have liabilities like car payments and a large mortgage they cannot afford.
It is time to think about owning some assets.
Stocks are my favorite asset right now. I invest simply into index funds that track the total stock market. Every quarter those funds produce a dividend, which is reinvested to buy more shares. Without doing extra work, I make passive income while I sleep.
Real Estate is another type of asset people tend to buy. You can buy REITs or even rental properties to create this asset from Real Estate. Should you own property? That question is all up to you, but it can produce some good income.
Financial Independence with Owning Assets
As we get closer and closer to our retirement ages, people want to make sure their assets can cover them as they age. The problem is that if you have not acquired enough assets you will have to continue to work.
The simple way to find out if you have enough money or assets producing enough is to find out your financial independence number. We do this by using the 4% Rule.
Take your spending X 25= FI number. So if you take $25,000 x 25= $625,000. $625,000 will be the amount of money you need to safely withdraw 4% from every year for the next 30 years.
My goal is to hit financial independence. I want to make money when I sleep, and therefore it will help push me to the point where I do not need any more money to actively work.
That is financial independence. It is when you have enough money and assets where you will no longer have to work.
How can owning assets be better than your job?
The simple thing is that you do not have to go into work if your assets produce more income.
Let’s do an example.
I own VTI, it is an ETF that tracks the total stock market. Every four months, or quarterly, it sends a dividend to me, which is cash money.
Right now, I have around 416 shares. The dividend for December of 2020 is around $0.78 per share. If we do some math, that comes out to $324.48.
In one day of work I make about $74. If we were to divide $74 into $324 we would come out with around 4.4. So that dividend paid about 4.4 days of work for me.
Dividends are paid quarterly, which is four times a year.
If you think about that, my dividends have paid about 16 days of the year that I work. It is all passive as well.
If I can increase the amount of shares I have then the dividends will increase leaving me with less days I have to work in the future.
Value of the ETF also goes up. If your portfolio goes up 7% a year, and you grow it more and more each year, then after a few years you will have enough to retire on if you continually invest your money.
Here are some wealth creating Assets.
Owning assets makes this machine roll. The more you own the less you have to work at your job. That is the name of the game. Work less and get paid more.
This can be with any assets. Real Estate that produces income is an asset. Stocks, bonds, and owning small businesses are assets.
Zach from Fourpillarfinance likes to own websites. Websites are another way to create income from your assets.
If you cannot afford Real Estate you can get into owning REITs ( Real Estate Income Trusts). These are companies that buy real estate, and they will pay you big dividends. That is another opportunity to own an asset.
Anything could be an asset, as long as it produces an income for you
Steps to Acquiring Assets:
If you want to be someone that acquires more assets you can take a few steps along the way to help yourself out.
- You can start with investing. It doesn’t take much money to start investing, and then you can get that compounding effect to start working for you.
- Stop buying liabilities. It is time to delay some of that gratification and start buying some assets that can fund yourself to buy liabilities. Let your assets buy your liabilities.
- Next do some research on assets you would like to get into such as Real Estate, websites, REITs, and other ways of earning passive income. There are many opportunities out there, you just need to do some research.
- Start buying more assets. As you buy more assets, those assets will give you enough income that can be better than going to a job.
Here are some steps you can take to start owning some assets. Owning assets is better than a job, the more you own the less you have to work.
Some Last Thoughts:
Assets produce income and create a life where the job you work is not always needed.
These assets can help you create some generational wealth as well.
Would you like to sleep and earn money? I know I do. It is time to stop buying crap and start buying assets. Owning assets are better than working a job.
What would you do?
” Spend less than you make, stay out of debt, and invest the rest”
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
13 thoughts on “How Owning Assets is Better than a Job.”
I finally here haha!
Great math used in explaining the role dividend plays in your FI path!
For me, my body is the biggest asset I can ever own, because without a healthy body I won’t be able to enjoy the money I made by any means haha.
The second thing I can think of is my time, and that’s why I like your blog and your way of thinking because I see saving as a way of buying back my own time in the future.
Thank you for reading Tommy,
I was wondering if you were going to read this one.
You are so right about your body. Oftentimes, people sit at desk jobs for 40 years of their life gaining weight and not staying healthy. At the end of their life, they cannot enjoy it as much because their bodies are overweight and out of shape.
On your second thing, time: Time is the most important thing to me as well. As I get older, my time starts to disappear. The assets we acquire today is something that will help us buy our time and our freedom to use time the way we would like to. I am using money as a tool to buy back my time.
Owning assets is always better than a W-2 provided you have enough assets. Most people need to start out with job, income, and a W-2 and move into assets.
Once you get that job, you can save, invest, and grow that asset portfolio. One day, you will then be able to walk away from your job since your assets will pay you more than your job.
I don’t agree with everything from Rich Dad Poor Dad, but he’s spot on about owning assets versus liabilities disguised as assets. Once I started tracking my net worth, it sort of gamified owning stocks (VTSAX) and made me want to keep throwing money at this growing pile of cash.
I don’t agree with everything Rich Dad Poor Dad says either. I do like is assets vs liabilities stance. When trying to create wealth you need to have assets that produce income. That will be able to help fund you to buy some of the liabilities. Yes, VTSAX is a my favorite. I have the ETF, VTI. I place about 95-98% of my money into. Growing that pile of cash is my goal, and then I will not need to work any longer.
Great stuff! Thanks for sharing.
Buying stuff that puts money back in your pocket is MUCH more satisfying than buying stuff that keeps you broke!
Your are welcome! You are absolutely correct. I enjoy buying assets more than things that keep me broke.
Great post. Love me some assets!
Here from BankerOnFire.
Interesting post, as it happens this is the first month (as of today) where my index funds have produced more than my job pays.
That is awesome news!! Index funds really are a great way to build wealth. Our jobs are good for cash flow so we can buy more assets. That is what I keep doing. Whenever I have enough money to invest I buy some income producing assets like Index Funds. 2021 has been a great year for investments. So keep it going and keep investing.
I am glad you came over from BankerOnFire. Damian writes a great blog.
absolutely love this financial concept and the way you summarize it. thanks
Awesome thanks for all the great post I’m going to go invest like yesterday love the way you found posted simple rite to the Point very helpful hope to see more sooner than later.Appreciate the kindness.