Think about all of the possessions that you’ve accumulated over the course of your lifetime. By possessions, I mean tangible possessions. When people say that education is very important, that is a mental possession. We invest in education under the assumption that it will allow us to accumulate tangible possessions later on. It is an investment in a potential future gain.
Now, let’s backtrack. Think of all the possessions that you have ever possessed. There are undoubtedly an assortment of possessions that are no longer in your possession. If you ever do a clean up, especially of a place that you’ve lived in for a particularly long time, you’ll realise that you have an assortment of possessions that you can no longer use.
At this point, you either sell it, donate it or discard it.
Our possessions are provided to us for a reason. If you’re into finance, the way I am, then you’ve probably realised that one of the most important skills for an individual to have is to: not only take care of their possessions, but also to know when a possession has reached its expiry date; as well as how many of those possessions need to be given away or discarded.
In accounting terms, we say that certain assets appreciate over time; and other assets depreciate over time. The depreciating assets are the ones that we intend to use or do use. Over the course of a certain period, its face value starts to decline. Assets that are going to appreciate could be assets that we intend to use. But if we keep checking to see if it’s going to appreciate, we need to ask ourselves–regardless of its value–whether or not we intend to sell it in the future.
Certain assets that we possess will grow in value over time. Other assets that we possess will decrease in value over time.
Within an asset class: there are both current and long-term assets, depending on whether we intend to hold it for a year or longer. If you intend to hold a possession for more than a year, it becomes a fixed asset. If it’s something you intend to hold for less than a year, it’s a current asset. A current asset is something you can liquidate quite quickly.
How many short-term and long-term assets have you accumulated over the course of your life?
Some people possess assets that generate income. Think about the long-term assets that you intend to create with your resources. What do you value?