Assets are things of value that you own, such as your house, the contents of your house, your car, your investments and, if you have one, your business. Some assets are better at generating wealth than others, and some assets drop in value over time, thereby reducing your wealth.
Assetsshould be valued at the price they can be sold for. List all your assets and their value, then look at their nature. How much money do you have tied up in assets which decrease in value? In this category will be the contents of your house, your car and other significant possessions which add to your lifestyle but not your wealth. These are lifestyle assets.
Of the assets which grow in value over time, the greatest wealth producers are likely to be those which produce income such as bank deposits, shares, rental properties and businesses. These are termed investment assets. By reducing your holdings of lifestyle assets and increasing your holdings of investment assets you should build wealth more quickly. Your family home comes into a third category, lifestyle property. It will usually add to your wealth less quickly than investment property as it does not produce income.
Balancing your assets is of particular importance when you get to retirement. Many people make the mistake of focusing on having a nice home for their retirement, with updated furnishings and no debt, along with a good car.
Ten years or so later, the car needs replacing and the house needs redecorating or repairs and it's not easy to find the funds for these expenses. As a rule of thumb, aim to have investment assets that are at least a third of the value of your lifestyle assets to keep the right balance.
