HOW TO BUILD ASSETS
Building assets is the key to healthy personal finance. Assets are primarily the money you have to your name and the things you own that help you earn more money in the future, like stocks and real estate. Building assets can seem intimidating, but by making plans for how to use all the money you earn, you can increase your wealth and take control of your finances.
1. Certificates of Deposit (CDs)
A certificate of deposit, or CD, is a low-risk financial investment offered by banks.
How they work is simple: You loan the bank money for a set amount of time known as a “term length” and you gain interest on the principal during this time.
A typical term length is anywhere from three months to five years. During this time, you won’t be able to withdraw your money without taking a penalty hit. BUT it’s pretty much assured that your money is growing at a fixed rate.
The interest rate varies on how long you are willing to invest for. The longer you loan money to the bank, though, the more you can earn.
2. Bonds
Much like CDs, bonds are like IOUs. Except instead of giving it to a bank, you’re lending money to the government or corporation.
And they work similarly to CDs as well — which means they’re:
- Extremely stable. You’ll know exactly how much you’ll get back when you invest in a bond.
- Guaranteed a return. You can even choose the amount you want a bond for (one year, two years, five years, etc.).
- Smaller in their returns, especially when compared with aggressive investments like stocks.
3. Dividend Paying Stocks
When you purchase stocks, many of those companies pay out a portion of earnings to shareholders on a regular schedule. These are called dividends, and ooh-wee… let me tell you – There’s few things more exhilarating than a big fat check with your name on it, courtesy of your stock market investments.
Typically, dividend paying stocks are the larger, more established companies. In fact, there’s a whole set of stock market darlings known as “The Dividend Aristocrats” who have earned their title by increasing dividend payouts for 25 consecutive years or more.
The percentage rate of dividends varies by company. If you’re an investor in EcoLab, you’re currently looking at 1.12% dividend rate. If you felt like juicing up those dividend yields, you could always move some money to a company like AT&T, whose annual dividend yield is 6.05% right now.
4. Rental Houses
The classic rental property. While stock market investors mostly rely on appreciation, rental property represents the cash flow special. The single family rental home is where most real estate investors get their start, and a good rental house can be a cash flowing machine for its owner.
The single family rental carries the advantage of easier management. With less tenants, less appliances, and overall, less things to break, single family properties can have less headaches.
Plus, the barrier to entry is pretty low. When it comes time to move, keep your old house instead of giving a realtor 7% of the selling price, and voila! You now (hopefully) have an income producing asset on your hands.
5. Vacation Rentals
While some investors certainly have success producing income from their vacation rentals, I’ve found these things tend to be a bit of a trap for most investors.
This irresistible idea of owning a slice of luxury usually causes vacation properties to sell at a really high premium and carry some heavy ongoing operating costs. This might be fine for the rich dude willing to pay for his dream getaway, but it puts a real squeeze on the investor looking for an income producing asset.
6. Real Estate Assets
There are a number of real estate investing strategies that can generate consistent revenue; however, one of the most common is investing in rental properties. This consists of purchasing a home or multi-unit property and marketing to tenants to earn rental income over time. Rental properties offer the opportunity to generate steady rental income over long periods of time. By hiring the right property manager, you can ensure your rental property runs smoothly—without a high level of involvement on your behalf.
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