How to Use Assets & Avoid Paying with Credit

how to use assets

How to Use Assets & Avoid Paying with Credit

I want to share one of my favorite stories with you today. This is key when learning to pay off debt and build wealth. The story illustrates my favorite secret of wealth building, which is purchasing assets.  An asset puts money into your bank account rather than taking it out.

Wealth is not always built through income alone.

For example, instead of using your hard-earned cash to purchase a new car (which would be money coming out of your bank account), it would be better to purchase an asset that can produce an income stream (money going into your bank account.) Then you’ll have an income stream outside of your job’s income and you can use that money to purchase the car.

The following story illustrates this point better than any definition I could share.

A Dirt Bike and a Calf: How to Use Assets & Avoid Credit 

 

At a seminar, I was explaining the concept of assets when a young man came up to me and said, “That’s exactly what my dad did for me when I was growing up. My dad’s a farmer and when I was in middle school, all of my classmates were getting dirt bikes to ride around the farm. I asked my dad if we could buy a dirt bike, too.”

His father jumped in and continued the story, “That’s right. But I told him, I’m not going to buy you a dirt bike, I’m going to buy you a cow…In fact, I’m going to buy you a pregnant cow.

The young man looked at his father and said, “But I told you that I didn’t want a cow. I wanted a dirt bike. Riding around the farm on a cow wouldn’t be quite as impressive as riding around on a dirt bike.”

But here’s what happened. This is the secret sauce when it comes to assets: His dad bought him a pregnant cow anyway. That pregnant cow ended up having two calves. The father and son sold one calf and paid cash for the dirt bike.

Now, they have a dirt bike that is completely paid off, a cow and another calf.

If they need to buy another dirt bike next year, the cow can get pregnant again and have another calf – maybe not two this time, but even one calf will do. Then they can buy a whole new dirt bike, trade in the old one, and have a bigger, better, paid-off dirt bike.

The key here is that instead of buying the desired dirt bike on credit, the father bought an asset with which to buy the bike. That asset will keep producing money long after the dirt bike is broken down and sitting in a garage somewhere.

At the end of the day, they had an asset AND a dirt bike!

The secret for wealth building is really simple, however it is not necessarily easy. The hard part is refusing to purchase goods and services with money that you have earned on your job! Of course you need to buy necessities: food, rent, utilities, etc.

But the key to wealth building is to avoid buying luxuries out of your paycheck. Force yourself to invest in assets that put money in your bank account. Then, use the cash flow from the assets to purchase the luxuries.

This secret involves transitioning your thinking from a consumer mentality to an investor mentality. An investor purchases or creates assets that produce a positive cash flow back to the owner.

Examples of Assets:

 

  • Rent from real estate
  • Profits from a business
  • Dividends from stock
  • Interest from bonds, CD’s, etc.
  • Royalties from songs, books, etc.
  • Commissions from insurance
  • Earnings from the internet
  • Etc.

The story of the cows and the dirt bike illustrates this point beautifully. Instead of buying a dirt bike (consumer mentality), the farmer bought a cow (investor mentality). It’s just a different way of thinking.

But it’s a mindset that builds wealth!

Have you ever used an asset to buy a luxury? Share your story below!

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Billy Epperhart
7 Comments
  • Elizabeth Huth
    Posted at 10:13h, 11 May Reply

    Hi, I recently built a 3 car garage and bought a 2013 truck in great shape. My payments for both are $525.00 a month. I have a small office cleaning job for 210.00 a month and get 218.00 from social security and have 100.00 biweekly put into a account that makes the payment. My paycheck is pretty well free and my retirement check is free and what I earn doing odd cleaning jobs is also free. Taking time to get your ducks in a row will keep your pay checks open to save pays off. The key to purchasing any thing is looking at what’s in your hand and working with that. Always have a backup plan should something change and you need to pay up.

    • Billy Epperhart
      Posted at 16:12h, 15 May Reply

      Those are good tips! Thank you for the comment!

  • la
    Posted at 10:41h, 11 May Reply

    This is great! Thank you! I have never used an asset to buy a luxury. I’m in debt, and I have no job or money to invest in an asset. Any suggestions?

    • Billy Epperhart
      Posted at 16:01h, 15 May Reply

      Unfortunately, you have to have something to invest. When you are starting out with nothing, it’s either turning a hobby into a revenue stream or finding employment in order to pay off debt. Once you pay off your debt, then you can look into investing in assets.

  • Jim Baker
    Posted at 13:05h, 11 May Reply

    Brilliant and summary my explained! Thank you!

  • Jim Baker
    Posted at 13:06h, 11 May Reply

    Brilliant and simply explained! Thank you!

    • Billy Epperhart
      Posted at 15:48h, 15 May Reply

      Thank YOU for reading!

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