Assets Are Better Than Credit
You wanna know what’s more important than throwin’ away money at a strip club? Assets.
Credit is important but its not the grail. Its also not the silver bullet. A lot of people see credit as a short cut to success. They assume that credit will allow them to skip steps like living below your means and increasing their income and stacking their paper, so they can immediately start investing at a high level. WRONG. The aforementioned habits help you not only get there but stay there. Its not enough to get to assets if your poor habits are going to cause you to lose them.
When I heard that Jay Z line I thought “and…. what else?”. Yes credit is important but its not the end all be all. Too many of us think that credit is free money. It is definitely not free and it all has to be paid back. This quick blog will tell you about the many things that assets allow you to do that credit just wont.
Assets allow you to be the bank
When you own assets that have no debt against them, or at least have equity (forced or natural), you are able to leverage those assets with a line of credit. This allows you to be the bank and be the lender. The same is true about having large amounts of money in brokerage accounts and even your personal retirement accounts. You can take a loan out against those assets while still owning those assets.
This is a double whammy. This is how the wealthy invest. I’m not saying that you have to avoid debt, because even the wealthy use OPM. I am telling you that being credit rich and cash and asset poor is not the solution to your problems. Too many cash and asset poor are looking to credit when they need to be looking at their financial statements. Build those up first or at least along side of your credit score but its not either or.
Assets require you to be wealth conscious, credit requires you to be consumer conscious
After you get your assets, you can use your assets to level up your life in the same way that you can use your credit to level up your life. The difference is that the person you will have become to build those assets will take you further than the skills you learn when you get good credit.
Getting good credit requires that you get really good at paying OTHER people. Paying in full on time is the mantra. But what does that mean and what does that look like? Well credit comes with interest. Your credit score shows how well you can manage the skill of paying people interest. This is why your credit goes up when you take on different kinds of debt. They want to see how skilled you are at managing different kinds of accounts. This is nothing to brag about. In the words of Malcolm X, debt is slavery and I think that is actually biblical. Slavery is not noble and neither is consumer culture. Remember, producers get rich and consumers get poor.
Getting your assets up requires that you get really good at having others pay you. It requires that you be a producer. A producer of housing, a producer of valuable produces and services etc etc. Which would you rather do? What is more lucrative? What can be duplicated and scaled? When you go down the asset lane you become the solution. When you go down the credit lane, others become your solution and they don’t solve your problems for the cheap.
Assets can be passed down
As I said above, assets can be passed down to make the lives of your heirs a lot better. But your credit can’t. Now if you are using your credit to buy assets this is smart and high five to you. But using credit to buy high priced things you can’t afford to pay cash for is just selfish. Especially if you are going to die and leave them no insurance to hold on to. Life is bigger than just you and your possessions. Life is bigger than you and your ability to brag about your high credit score.
Credit scores are overrated, financial statements are underrated
When you get to a certain level of borrowing and investing the banks care more about your financial statements than they do about your credit score. Banks want to know that if the loan goes bad they have assets to go after. If you have a desire to really do big deals you have to build up your asset column. This is your stock portfolio, your real estate portfolio, your business portfolio. When you have big assets you become attractive to banks because they feel secure in lending you money. At a certain level your credit score just wont cut it so having one that is sky high really wont make or break the deal. If the deal make sense the money will find you.
Conclusion: Having good credit is super important but so is having a stash of reserves and assets that allow you to lend against them. Keep in mind that your kids can’t inherit your 800 fico but they can inherit that business, that home, that apartment complex. Do both. It’s never either or. But just as you are required to get a good credit score while you build assets you are also required to build assets as you are building your fico. There are no easy fixes. Like Eric Thomas says “i’m triple double”. Dominate all areas of personal finance.
Be great, invest well,
This article originally appears on the Todd Capital Blog