What are the four best financial assets you should own? Stocks, bonds, real estate, and gold? Those are all amazing assets but the ones I’m talking about are a little different. These are assets that anyone, at any age, with any bank balance can begin to develop. Here they are in order of importance, from least to greatest.
The Four Best Financial Assets
1 – A High Credit Score
Why is a high credit score a valuable asset? Your credit score affects your ability to borrow money and the price you pay for borrowing it. If you have a low credit score, your ability to buy other assets like a house, condo, land, rental real estate, or a business is greatly diminished.
People with low credit scores are saddled with higher interest rates than those with high credit scores. Lenders view loans to people with lower credit scores as risky, and they charge higher rates to compensate for that risk.
For example, let’s say you’re shopping for a $200,000 mortgage financed over 30 years. For simplicity’s sake, if you have a stellar credit rating, your interest rate will be 3.92%. If you have an average credit score, your rate is 4.92%. And if your credit really stinks, your interest rate is going to be 5.92%
You might think, “Well, what’s one or two percentage points more?” A LOT! A person who has a 4.92% rate, will pay $42,572 more in interest than the one who has the 3.92% over the life of the loan! And the poor guy or gal whose rate is stuck at 5.92% because of their bad credit will pay $87,553 more!
Now you can see why a high credit score is indeed a valuable asset. If you haven’t recently pulled your credit report and checked your credit score, do that now. Take the steps you need to improve your credit score, so you’re not overpaying to borrow money!
2 – A High Income
Why is a high income a valuable asset? Your income is typically your biggest wealth producing tool. If your income is barely enough to cover your daily expenses and your debt payment, it’s really hard to save money or build wealth. However, if you have income above your needs, you’re able to fully invest in your 401(k) or IRA, buy ownership in a business, or purchase other valuable assets.
Just because you have a high income doesn’t necessarily mean that you’re using it wisely! I have plenty of clients who make serious bank, but have very little in the way of savings or investments. A high income is only an asset if you don’t spend it all.
What are some ways to increase your income? Ask for a raise or apply for a different, better paying position within your company. Work some overtime, if it’s available. Look for a different job with a new company that will pay you better (and be sure to counter-offer because most companies withhold about 10% from the first offer.) Are you a business owner? Get my FREE training, 7 Ways to Increase Your Biz Income This Month
3 – A High Net Worth
Why is a high net worth a valuable asset? If you have a high net worth it means you’re able to weather the financial storms of life. First, let’s definite net worth. Net worth equals your assets minus your liabilities. Add up the value of everything you own (bank balances, retirement and investment accounts, the value of your home, vehicles, and other assets) and subtract any debt.
The answer is your net worth, which you definitely want to be positive! You see, it’s possible to have the first two assets, a high credit score and a high income, but not have a high net worth which is more valuable. In fact, I’ve known people with moderate incomes and less than stellar credit scores who have built a high net worth. How? By spending way less than they make and investing wisely.
A high net worth is a cushion against the storms of life, such as a job loss or illness. If you have assets and money in the bank, you can take care of your expenses while you recover your health or look for another job. This is why it is SO valuable. And if you have a high income and great credit, it’s much easier to build a high net worth.
4 – A High Financial IQ
Why is a high financial IQ the MOST valuable asset? Because even if you lose everything – your perfect credit score, your high income, even your high net worth – you have the tools to recover all of them. If the market plummets, the economy crashes, and someone sues you for everything you’re worth, there’s one thing that no one can ever take from you – your financial IQ.
Knowledge is power, but applied knowledge is like a magical super power! This is why you hear of millionaires who go bankrupt because of a bad business venture, yet return to their millionaire status a few short years later. They have a high financial IQ. They understand money, investments, and how to use debt properly. Possessing a high financial IQ will assist you in creating wealth no matter your starting point.
The best thing about this most valuable financial asset is that it costs NO MONEY to get it! You can listen to financial podcasts, borrow books from the library (like Napoleon Hills’ classic, Think and Grow Rich), watch YouTube videos on investing, and read blogs on money management. It will cost a little time and effort, but there’s truly no excuse for growing your Financial IQ.