Every once in a while, it's good to track your big-picture net assets and see what you really own. This may be shockingly pleasant news for you, or it may be a gloomy reality check, mine was the latter when I first calculated. There are many things that you own that are simply a liability/expense and not an asset that appreciates in value. Some of these include phones, cars, and furniture.
On the other hand, you may own things that are actually an asset that could appreciate in value such as collectibles, art, jewelry, life insurance, land, etc. This does not mean you should go out of your way to buy jewelry or handbags as you can rather own assets that will increase in value and/or generate passive income.
In the above diagram, I charted out all the assets that we own which include our primary residence, investment properties, each of our 401K retirement accounts through work, our personal brokerage accounts (growth, value, and Ava's), and lastly cash/equivalents. Although our car can be considered an asset, it is a depreciating asset and will eventually be worth nothing so I did not include that.
As shown in the below diagram, it first starts with our income through our work. With our income, we are able to purchase and invest in assets that will either lower our living expenses (primary residence) or become our source of passive income (Investment properties, dividends).
For example, our investment properties will be able to generate cash flow that could replace our traditional income from our employer. It's not to say that as soon as we reach that point, we will quit our jobs, but we will have reached Financial Independence where we are no longer working because we need to, but because we choose to and find passion and joy in what we do.
Below I will talk more about these assets:
Primary Residence
goal: pay off the primary residence by our 40s
The first asset that we own is our primary residence. When reaching financial independence, having our primary residence paid off will help our living expenses cut in half. Thereby we will need much fewer earnings from passive income in order to stay financially independent.
There are many strategies for paying off this debt, some methods could be through selling properties that have appreciated in value or simply allocating additional disposable income to them (read: How to Pay Off Mortgage Early).
Investment Properties
goal: own 4-5 investment properties and have half of them fully paid off
The next asset that we own is in our two investment properties both located in the city of Chicago. Once these are paid off, it will generate about one thousand dollars in passive income for each property. To read my strategy on paying down the mortgage and acquiring additional properties, (check out: How to Buy an Investment Property every 3 Years)
401K Retirement Account
goal: continue to maximize our employer matching programs and grow it
We each have a 401k plan sponsored by our employer. As we cannot touch this account until 59.5 years of age without having to pay a penalty, we are simply leaving it to grow passively and not thinking about it. Once in a while, I'll check to see how the account is doing and maybe transfer between value to growth funds, but I will leave this as a traditional avenue of retirement. I have witnessed many everyday millionaires simply through this method and it amazes me every time.
Brokerage Accounts
goal: grow all three portfolios by reinvesting the dividends and consistently investing each month
We have a primary, diversified portfolio using the Charles Schwab account. The second portfolio is a smaller, growth-oriented, and speculative portfolio through TD Ameritrade, and our third brokerage is through Robinhood where we invest all of Ava's money into. This account is more geared towards growth and long-term holdings.
Through brokerage accounts, you can also receive a significant amount of dividends that you can use to either reinvest into the stocks automatically or utilize as a passive income. (read: Stocks That I Own in My Portfolio / Ava's Savings / Investment)
Cash, or Equivalents
goal: continue to maintain a high amount of cash
The last asset class that we own is cash and cash equivalents. Money experts without a doubt mention the importance of emergency funds, and rainy-day funds. It is tempting to use this money to own additional assets that can grow for you. However, the benefit of holding cash was more valuable than I imagined when we decided to buy our second investment property. When I actually held cash, various opportunities seem to come to light more than when I did not actually hold any cash.
Cash equivalents that we own are the Health Savings Account, and the 529 Plan that we have created for our daughter both of which we contribute through our employer.
When we had our daughter, the remaining bill even after the insurance coverage was a big chunk. Luckily we were able to use our HSA account to pay the rest of the balance (read: Setting up a 529 Plan)
Other cash equivalents can include: Roth IRA, High-Yield Checking Accounts, High-Yield Savings Accounts (CDs), Traditional IRA accounts
Things I Plan to Grow:
Continue to diversify our income streams to help better prepare for financial independence.
1) Business Income (Small Business)
2) Additional rental properties
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