Investing in real assets.

Ask a person owning a flat and paying huge housing loan installments, what are his savings and investments. Most of them would answer it to be the house itself. It is a common misconception that your residential house (or a home) is an asset and the money being paid as installments is investment.

A home is a definitely a emotionally valuable possession. But we should also realize that it is not a real asset. All our possessions or assets can be classified into two categories. One is ‘Income generating assets’ and ‘Non- income generating assets’.

For any person it is also important to have real income generating asset. From this perspective your assets like bike, gold jewels, home (your primary residential house) are not income- generating assets unless you have bought them to sell when they fetch higher value. Any amount of increase in value of your house is going to be only notional and you can realize it only when you sell it, which again is a rarity.

Income generating assets are those which generate passive income for you. Passive income is an income earned without much of an effort from your side. Returns from investment in debt, equity, real estate, commodities, rent from a house, etc are examples of passive income.

So, it is important for everyone to invest reasonable portion of your earnings in real income generating assets. This will be your first step towards ‘Financial Independence’. (Financial independence is ability to continuously sustain all your expenses from your passive income.)

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