Accumulate Cash-Generating Assets

Photo by Giorgio Trovato on Unsplash

In my previous article I discussed the importance of making your money work for you by investing in wealth-generating assets. In this article I want to focus on the importance of investing in cash-generating assets in particular.

While you can grow immensely wealthy from assets that appreciate in value without providing you a stream of cash until you sell them or monetize them in some other way (stocks rising in value but not returning dividends would be an example), living costs require payment in cash.

Before we go further, it is important to understand what cash is. Cash is the form of money that is accepted as payment and used as a medium of exchange. There are assets such as real estate and stocks that have value, but are generally not accepted as payment. You will have a hard time going to the grocery store and trying to pay for your merchandise in stocks, for example. (There are contracts that may allow payment in assets such as real estate and stocks, but the most widely accepted form of payment is cash.)

Because living costs are paid in cash, it is important to have cash at hand.

While you can sell assets and convert them into cash, this is an inconvenience for you because you may want to hold on to those assets and take advantage of their potential appreciation in value. This situation puts you in an inflexible position. If you need to make payments but lack the cash, you can sell assets in exchange for cash but you will lose the opportunity for those assets to increase in value and provide you with greater wealth in the future.

You can also finance your purchases with debt. Many people today use credit cards to make payments. However, this is simply a way to delay the cash payments you’ll have to make. You may borrow the cash to make payments now, but eventually you’ll have to pay back that cash to your borrower, and with interest.

Therefore, it is important to have cash at hand to pay for the costs of living and to avoid having to sell assets and forgo the opportunity to hold on to them while they appreciate, and also to avoid having to borrow money that you would have to pay for later, with interest.

Many people today only rely on one source of cash flow: the salary from their job. While this may be sufficient, having multiple sources of cash flow will give you a stronger foundation for your financial security, as I explained in my previous article, “The Security Of Having Multiple Income Streams”.

Having sources of cash flow in the form of cash-generating assets is powerful, especially when these assets don’t require much time in order to generate cash. Your time is limited. Trading your time for money limits the amount of money you can make, as time is a limiting factor. However, when you have assets that can generate cash for you with little or no input of your time, you will free up your precious time to do other things in life, while also having cash to pay for the costs of living. Since time is not a limiting factor, you may even be able to scale your cash-generating assets to bring in ever more cash for you, making you increasingly wealthier.

Acquiring cash-generating assets can free you from reliance on a salary for your cash needs. It provides financial flexibility, and therefore financial power, as it can also free you from the necessity of having to liquidate assets or take on debt to make immediate cash payments. Note that I use the word “can” in my previous two statements. Just because you have cash-generating assets does not necessarily mean they will provide enough cash for you to fulfill these financial needs. The key is to grow your cash-generating assets to the point that they are able to do so.

Some ideas for cash-generating assets include businesses, real estate, and intellectual property (books, patents, music, films, videos, art, photography, etc.).

Regarding businesses, not all businesses return cash directly to their owners (unless the owners decide to sell their shares). Businesses may reinvest the cash into growth and expansion instead, or repurchase shares to increase the remaining shareholders’ ownership interest. Some businesses may even be losing money. When investing in publicly-traded companies, purchasing dividend stocks will provide you with cash-generating assets. For privately held companies, some may return cash directly to the owners, while others may not.

Earning cash from real estate is straightforward. If you have livable real estate properties such as a house or an apartment, you may rent it out and receive cash flow. You may decide to rent the property in full or simply rent a room or several rooms. If you own a building you can monetize it by renting it out to stores, offices, or apartment-seekers, for example. If you own land, you may be able to earn cash from agricultural produce or whatever natural resources the land possesses. If you don’t have enough money to purchase large real estate properties, you can purchase REITs (real estate investment trusts), which are shares of companies that operate revenue generating real estate, and receive dividends from these shares.

Earning cash from intellectual property is also straightforward. You can license it, you can sell copies of it, you can earn royalties from it, etc. Many people today already put out content on social media in the form of videos, music, articles, etc. which constitute intellectual property. There are social media monetization programs that allow you to monetize the content you create.

These are some examples of cash-generating assets you may consider. Decide which ones resonate with you as you build your asset portfolio.

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Justin Zhuo Yan He

Justin Zhuo Yan He

Business, money, self-improvement

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