There are many definitions for asset, which get into complexities, hopes and often dreams in an attempt to explain the concept. But what we find many if not most times is that they are confused with investments, so whats the difference really?
When we discuss assets we are talking about only 2 things and why it’s not your house.
1. Anything that generates revenue, now
2. Anything that reduces your requirement or expenditure of revenue, now.
For instance a stock that pays dividends or gains – asset, buying art – investment. Starting a lemonade stand – asset, buying stock in a lemonade company – investment, and so on.
In the second category, trading down your car to improve fuel mileage without coming out of pocket or making your own shampoo from baking soda – asset. Buying a new Tesla to save on the price of gas, that’s just a bad decision (buying it because it’s awesome, hella right tho).
But why isn’t your house an asset? It doesn’t produce revenue and in the oft cases that it does the gains are not commiserate with the effort or initial outlay of capital and more importantly time, but more on that in a future article (and why you can “never” own your home).