This is a powerful idea that Robert Kiyosaki puts across in his bestselling books Rich Dad Poor Dad. It is an idea that is so easy to understand and implement yet so hidden to the majority. This topic will teach you how to get a free asset. However, let us understand several things about assets.

What is an asset?

An asset, according to Kiyosaki, is something that puts money in your pocket. In short, an asset is an income-generating investment.

Rich people buy assets, the middle class buys liability thinking that they are assets while poor people buy liabilities without thinking of assets.

Examples of assets include real estate, stocks, precious metals, public service vehicles, businesses, government bonds, etc.

Many people buy liabilities thinking that they are assets. People buy personal cars and build expensive houses terming them as their greatest investments. This is what keeps the middle class in a state of financial stagnation.

Different classifications of assets

Assets can be classified differently. Let us look at several ways of classifying them.

1. Tangible versus intangible assets

This is the most common classification.

Tangible assets include everything that you can see or touch. They have a physical substance. Real estate, precious metals, businesses, etc. are all in this category.

Intangible assets cannot be seen or touched. They include intellectual capacity, intellectual property, your connections, your mindset, etc.

2. Long term versus short term

A long term asset is one that is held over a long period. They are not intended to be disposed of soon. This includes pensions funds, long term bonds, stocks, real estate, etc.

Short term assets are those that are bought for purposes of being disposed of soon. This includes business inventory, short term bonds, short term stocks, etc.

Other definitions

Wasting assets

This is an asset that irrevocably depreciates.

These assets should only be bought after doing serious financial calculations. They include cars, plants, etc.

Current assets

Current assets are those that can easily be converted to cash.

These include business inventory, short term investments, receivables, deposits, cheques, etc.

Fixed assets

These are assets that are purchased for the long term and continuous use. In business, they are known as PPEs (Property, plants, and equipment).

They include buildings, furniture, machinery, etc. These things have to be used to make money for them to be termed as assets.

How to get a free asset

It is possible to get a free asset using an existing asset. This is very easy.

If you invest 1 million in stocks that end up appreciating by 10% every year, you will have stocks worth 1.1 million after one year. After 2 years, the value of the asset will be 1.21 million.

After 5 years, the stocks will be worth 1.61 million. This is the power of compounding.

If you sell stocks worth 1 million to recover your initial investment, you will have stocks worth 610,000 left.

This is a free asset. It is an asset that you have gotten over time.

After withdrawing the initial investment, you can keep the free asset and invest the initial capital in another investment vehicle.

You do not have to mind about the free asset because it is free after all. Even if it depreciates, you do not have much to lose.

You can also keep the free asset for the long term. This free asset will give you other free assets over time. This is how wealth is created.