What is an asset, and why does it matter?
An asset is something you purchase that will provide you with an income.
It matters because this will give you financial freedom and offer you the opportunity to live life on your terms instead of that of the bank or your employer.
Examples of assets are properties, retirement products (pension funds, RA’s), shares, discretionary investments and shares in a business.
What are “fake” assets? Your primary home is a fake asset. While you live in the home, it is an expense and only costs you money, with maintenance, levies, rates and taxes, and water and lights, so until you sell it or get someone to rent from you, you can exclude it from your asset basket.
Another significant fake asset is your car. A car is an expense and loses value on average 10% per year, so this should not form part of any wealth calculation.
Asset accumulation is the only real way to become wealthy, so make that your focus when assessing your next big purchase.
Lifestyle creep is when we earn more, we spend more, which is how we actually never grow our wealth.
We earn R20 000pm we spend R19 000pm, we get an increase to R25 000pm we spend R24 000pm, so we actually have not moved forward at all.
Beware of the creeps.
Currently, the world is in a low-interest-rate environment, which means it is suitable for taking on debt but terrible if you have money in an interest-bearing account like a bank account or money market.
When last did you check your interest rates?