The traditional definition of assets defines an asset as anything you own that has some monetary value.  While this definition is correct and may seem logical, it is completely unhelpful when it comes to wealth creation.  For example, the car sitting in your driveway or even the television sitting in your lounge room are assets under this definition.  The wealthy are rich because they own lots of assets aren't they?  But how are either of these "assets" helping you become wealthy.  Well in short; they're not!

It is true that to be wealthy, you need to own lots of assets, but these assets must be of a certain type.  In the world of wealth creation we need to define assets differently so that we can easily distinguish between assets that help you become wealthy like stocks or investment real estate and assets that don't help you at all, like the car and TV we just looked at.  In terms of wealth creation we can define assets as either:
  • Good assets or bad assets

Good assets, when owned, put money in your bank account.  They are things like stocks, bonds, mutual funds, commodities, investment real estate, futures, options, hedge funds, and so on.  All these assets have the ability to put money in your pocket.  These are commonly called investments.

Bad assets take money out of your bank account.  They are things your car, house, clothes, TV, stereo, mobile phone, furniture, CDs, Xbox, boat, and so on.  Bad assets take money out of your pocket in three main ways.  They cost you money to buy, they usually cost you money to maintain and they have an opportunity cost, which represents the forgone opportunity and benefits that could've been earned or received from that opportunity.

The types of assets you own as well as the amount of you own largely determines which wealth class you're in.  The problem is that people often don't distinguish between good and bad assets.  The table below summaries the connection between asset type and wealth class:

 

 Bad Assets

 Good Assets
 (Investments)

 Poor

 Little to none

 None

 Middle Class

 Loads

 Little to none

 Wealthy

 Minimal
(compared to their wealth)

             Loads