Money Smart Skill #3: Invest in assets

First of all, what is an asset? Sounds like a fancy accountant term. In reality, an asset is something of value which you own but smart money investors expect to not only own assets but have those assets bring in cash flow monthly. Boy, was this a lesson for me.

For example, by definition my horses are assets, but they cost me money rather than making me any. Money smart investors would not invest in horses but they are my family. Money is not everything and I never think that way. I love my life now even though I am hardly rich but investing in the asset of a network marketing business has given me back my dream of spending time with my horses.

According to one of my money smart mentors, Robert Kiyosaki, there are 4 classes of assets which bring you cash flow monthly. They are:

Businesses – the advantages of owning a business are tax benefits, the ability to leverage other people’s time to increase your cash flow monthly and control of the way things are run. The disadvantages include high start up costs, managing people and developing the money smart skills to turn a regular profit.

For me starting a network marketing business was perfect to help me get started in building an asset. Once I understood the power of leveraging other people’s time without having to actually employ them I was on willing to get started. I did not have the money or desire to get into a franchise business so the low start up cost of network marketing was perfect. I found a product I loved and was passionate about and a company I believed in.

The first network marketing company I joined did not have a strong training and marketing system in place so I struggled with maintaining a positive cash flow monthly but despite this my business grew. After working hard to build a strong customer base I wanted to look more for business partners and I needed a company that focused on the money smart principles I had learned from Robert Kiyosaki about the power of building networks.

With my current company, Xango , I am getting support for developing my leadership skills so that I can work with a smaller group of dedicated partners and guide them to the training systems the company provides. Not only does this make the best use of my time but I end up reaching and helping more people with my product as the process duplicates through my network.

Five hundred extra cash flow monthly is so doable with Xango. This is the average income for the 5K level, only the second step in the company compensation plan.
Actually the average 5K distributor makes over $800 but I am talking about a net cash flow monthly after you pay for the products you personally consume. I pick the $500 amount because studies show with this amount of extra cash flow monthly 95% of the home foreclosures could have been avoided. This level of extra cash coming in each and every month is life changing for many households.

Real Estate – the advantages of owning investment real estate include the ability to leverage the banks money, take advantage of tax benefits like depreciation and collect a steady cash flow monthly if the property is managed well. The disadvantages include significant skills to select good properties, the money smart skills to manage them and ability to have money tied up in property.

After realizing that my raw land was not an asset, by money smart thinking, I set about to turn it into one. I refinanced the land and built an office building/barn on it. My plan was to rent this out to cover the new mortgage payment and then eventually move my practice to the new building. My lack of money smart skills showed up with one mistake after another. I certainly did not do my research about rental rates and location.

Despite making many mistakes I was able to rent my property and eventually sell it which gave me the money to buy my current farm and a rental house in Arizona. Of course, I sold my land and bought at the height of the real estate bubble so my rental house is not currently an asset. I am learning and the willingness to learn from mistakes is an important money smart skill.

Paper assets – the advantages of paper assets include the ease to buy and sell them and the ability to start with a small investment. The disadvantage is the need to become educated and spend the time to monitor your paper assets closely.

I got started very late with my stock market investing so I did not have the luxury of waiting for gains based on compounding interest over many years. I wanted to learn about investing in stocks so I read several good books and worked some with a dependable stock broker. I picked a few good stocks and had some nice gains but invariably I would get distracted and miss important news that affected my holdings. I ended up losing money on most of my stocks.

I decided I was better off going with managed mutual funds and I saw my holdings go up and down at the whim of the market. I decided to pull out of mutual funds before the market tanked completely. With what I am learning about how inflation eats away at gains in the stock market I am very pleased with this decision even as the market is currently in a rebound.

Commodities – Oil, Gold and Silver are examples of commodities. These are real, physical assets that go up in value as inflation increases. Commodities are less likely than paper assets to increase or decrease rapidly in value and they are less affected by people’s daily fluctuating emotions. The disadvantage is that since they are physical they have to be stored and this can increase the cost.

I moved into commodities such as precious metals, real estate and natural gas that I could follow more closely. Since I bought these exchange traded funds to hold long term, I then sold options on them to bring in income even if the funds did not go up in value. With this kind of option I sold the right to buy my stock at a set price over what I paid for it. If the stock went up more than this price the purchaser of the option made more money for his extra risk money and I made a small profit. If the price did not go up to the set price I made the option money and the risk taking option buyer lost his money. This is a more conservative style of investing but it allows me to make money even in a flat market. Even though I pay more in commissions I work with a trained stock broker to handle my account.

Part of being money smart is to pay attention to trends and cycles. What is working right now may not work next week, month or year. It is important to pay attention to your money but not dwell on it. Dwell on your dreams. Those you gain the money smart skills of getting rid of bad debt, building cash flow monthly and investing in assets will be able to live their dreams. Madalyn