Building an Asset Column
There were three events that greatly impacted my financial life. This is part two of three, where I will be writing about asset columns. The main idea is to buy income producing assets that generate perennial money over time.
I first came across this concept when reading the 1997 book Rich Dad Poor Dad, by Robert Kiyosaki. The book primarily focuses on real estate. But stocks and bonds can also be included in an asset column. 🙂
The book that changed my outlook on money
I picked up Rich Dad Poor Dad when I was 17 after a friend suggested it to me. Many of the concepts Robert discussed in the book such as taxes, inflation, and hard assets were completely new to me. But what fascinated me the most was the idea of financial independence. And also how to build wealth through investing in assets.
This was the first time I witnessed concrete examples of how to take actional steps to create a “column” of financial assets. A properly constructed asset column should grow by itself over time.
From learning about compound interest earlier that year I already knew how to make time work for me. And now thanks to Robert’s book, I learned how to get money to work for me. The two concepts combined lead to a breakthrough moment in my financial education. 😀 It completely changed my perspective about money.
Accumulate all the assets
Before I had thought of money as something people earn and spend in order to live. The idea of retiring early or becoming a multi-millionaire had never occured to me. But after reading the book, I began to see money from a completely different angle – one that involves assets and liabilities. I learned money isn’t only good for spending. It’s also good for generating more money. The poor and the middle class work for money. But the rich have money work for them. Robert explains how to multiply your investment returns with a fancy strategy call leverage. 😉
I learned that the rich buy assets first. Then use the income generated from their asset column to buy wants and luxuries. Their lifestyle is funded by money working for them. Meanwhile the poor and middle class tend to buy luxuries first and don’t have much in terms of assets. So their lifestyle is funded by their own “sweat, blood, and children’s inheritance.”
Making money work for you
My asset column began with $3,000. I was in my early twenties and full of enthusiasm. 🙂 What gave me confidence was that compound interest and time doesn’t discriminate if you’re rich or poor. Everyone has equal opportunity to make investment gains. My $1,000 in a stock has the same chance at earning a 10% return as Bill Gate’s $1 billion in the same stock.
Maybe I didn’t have a lot of investment experience when I was starting out. But I had a significant advantage – time! Most older investors would trade their money for youth any day.
From slow beginnings
I only made a few hundred dollars of dividends in my first year of investing. Not much, but I was not deterred. As my salary grew I saved and invested more. Every year I was trading more of my active income to produce greater passive income. 🙂
By the fourth year, I had diversified my asset column to include bonds and REITs. I was earning over $4,000 a year from dividends and interest. Yay. 🙂 I could see my investment income was growing exponentially now. This drove my desire to find new ways to save and invest even more. The following year in 2013 I added farmland to my asset column. I started earning an additional $10,000 a year in farm rent. 🙂
My asset column today has ballooned to $1.2 million, excluding my primary residence. 🙂 Everything in my asset column creates income for me in one way another.
Watching my asset column grow over time is the most satisfying thing ever. By 2025 I hope my investable assets will grow to be worth at least $2.5 million.
It’s not enough to just buy financial assets willy-nilly. Not all assets are the same. Overpaying for a low quality investment is like buying velcro shoes that don’t fit. It’s a total rip off! 😉 Instead, I only add high quality assets to my asset column when I can buy them at a fair price.
Comparing assets to spending
Before I spend money on something non-essential, I always ask myself if I would feel better putting the money into my asset column instead. And the answer is usually yes. For example, when I received my tenant’s rent payment I thought about buying a Nintendo Switch with some of that money. But then I thought about Robert’s teachings – how the rich buy luxuries last. And I decided to send the entire payment to my investment account. This means I value growing my asset column more than buying a new game console.
I don’t agree with everything in Robert’s book. But his concept about building up an asset column, even if it means taking on debt, has really improved my life financially. After adopting this mindset for over 10 years it’s become second nature to me. 🙂 As I’ve mentioned in last week’s post – I usually receive more fulfillment from having the option to buy something than from the novelty of actually owning it. If you have a similar mindset towards money, then you probably have a growing asset column as well. 🙂
Random Useless Fact:
Studies show that women are attracted to men who wear blue on a first date.
Well done, Liquid. love the diversification and how you are compounding your wealth.
Keep up the great work & thanks for sharing. All the best and looking forward to seeing you hit that $2.5M number 🙂
Thanks. Hopefully the economy won’t take too long to recover from the pandemic. Patience is a virtue when it comes to investing. I am willing to wait as long as it takes to become financially independent. 🙂
[…] my asset column is worth over $1,000,000 and generates about $50,000 a year of income for me. 🙂 See this post for the updated […]
Hi Liquid, about what things do you not agree with Robert?
For example, Robert believes your primary residence is not an asset. It’s a liability. But I think it’s the opposite, lol.
it is only an asset if that house has a rental suite that covers, property taxes, interest expense, maintenance fees and renovations…
[…] interest rate. I’m earning 54 basis points to borrow money. Woot! 😀 Financial author Robert Kiyosaki says smart people use debt to get rich. He’s right. I’m growing my net worth by […]
[…] today, much lower than before. 🙂 And in hindsight I’m convinced that aggressively growing my asset column even at the expense of borrowing money was the correct thing to do. Fortune sides with those who […]
I am struggling to understand and hope some one can clarify me – buying an asset (by borrowing -loan@ interest) though it generates cashflow(rental) – the loan debt has to be paid monthly which is money out of your pocket and is a liability until the loan is cleared. And typically the rate of loan is higher than the rate of income out of that asset. So how is this helping by building assets that put little money than what is going out…
Hi Ravi. The primary idea is to build a large asset column and take advantage of compound growth. Borrowing money to invest could be a part of this strategy if the cost to borrow is lower than the investment returns generated by the asset. It’s simplest to start from expectations. You mentioned that typically the interest rate of a loan is higher than the rate of income from the asset. If we assume this is true, then leveraging would not work. It doesn’t make sense to buy an asset with borrowed money in this example. But in other cases borrowing money does work. Here are a couple examples. If you live in a large city with a growing population, then investing in real estate long term is probably a good financial decision. But because homes are expensive, it’s difficult to buy one without a mortgage. So if the interest rate for a mortgage is relatively low, then using debt to finance a house is worth it in the long run. In Canada for example, mortgage rates are roughly 2% a year. Sure, you are paying cash out of your pocket. But if property prices continue to move higher by 5%… Read more »