Welcome to SBL027 (Sycamore Business Lab): our periodic blog post where we address issues affecting you and your business.
A person’s finances encompass the oversight, creation and study of his money, banking, credit, investments, assets, and liabilities.
To secure your assets with finance would, therefore, involve protecting acquired assets and increasing your cash flows by acquiring more assets and gaining financial knowledge through a committed study of money, finance and how they work.
Plus and Minus
While assets put money in your pocket, acquiring assets increase your cash flow, in the sense that you now have more money flowing in, than you have more money flowing out. It’s not about much cash and cash equivalent one has, instead it’s more of their ability to control their expenses relative to their revenue.
A liability is anything that takes money out of your pocket and therefore your cash flow is simply where the money flowing in from, and where is the money flowing out to.
Increasing Wealth with Assets
Like a two-edged sword, asset acquisition can help increase wealth and make you rich, it could also pose as a liability and make you broke, and it all depends on how you use your asset it is you acquire. Here’s how:
Take these common examples of assets VS liabilities;
Both items mentioned are assets and at the same time liabilities, except one would keep adding more money to your pocket than it would take from you, which could also lead you to acquire more assets. While the other, just keep taking more money from your pocket. If it is creating more income for you, it is an asset. If it keeps increasing your expense more than it creates income for you, it is a liability.
How to Secure Your Wealth
Securing your wealth lies in your ability to convert liabilities to assets. The following can be used to secure wealth/asset:
1. Investments — Unlike savings, Investment is a greater asset so far it increases the flow of income into your pocket. Savings, on the other hand, gets defeated by fluctuating inflation rate over time and causes whatever amount saved to lose its value compared to the initial year it was saved.
2. Good Debts — Debts like a two-sided coin, can be good and bad. Good debts are debts that give back to you in income, the amount or more than the amount borrowed. Sycamore, for example, uses good debt as an advantage/asset. Say you have a pool of investors that lend you money to make more money, and even though you pay them an agreed interest, it doesn’t stop you from making more money. Bad debts are debts that basically just take from you, that’s all they do. Say you take a loan and all you keep doing is payback with interest, without the money borrowed giving you an equivalent or more than the amount you payback.
3. Commodities — Example: Food, Organic foods. Farmers make money because they provide essential commodities, which is food. You can make more money not necessarily as a farmer, but because you make provisions to provide for the people providing for the necessity. The key here isn’t commodities, it’s provision. “in an era of gold mining and trading, we would sell shovels”. Securing your finance using commodities and provision as an asset, it somewhat similar to investment.
Financial knowledge or education may be the most valuable asset of them all. It can be easily acquired through a commitment to reading books and incurring a profitable expense of paying attention to steps and guidelines recommended by such books. Financial knowledge is not just an asset to increase cash flow, but it is that one asset that can secure every other asset(s).