Maintaining Existing Assets

It may already be obvious, that our modern society involves careful planning in order for us to survive, since gone are the days of barter exchange, where I gave you my pig in return for some of your fresh vegetables. The fact that we have adopted money as a medium of exchange, in many ways allows so much more enterprise, flexibility and development, but also requires that care be taken when making financial decisions.

We all need to create assets or to maintain the ones we already have, and once this is addressed, it provides a solution as to how we pay for our liabilities and sustain our existence. If a person’s assets are more than their liabilities then they are said to have accumulated wealth, and ideally, it is desirable to remain in this position. This gives the person the ability to spend more in the consumption of goods and services, but as is often the case, once something is consumed, it may never be able to be recovered. Therefore, when wealth is achieved, a person needs to spend that wealth wisely, for it is the continuous flow of value or money that maintains or increases wealth.

Despite the most elaborate and strategic of financial plans, the uncertainty of the future can often present unexpected contingencies that affect the most careful of individuals. For example, a person’s assets may be well in excess of their liabilities, but if the value of these assets were to fall, then their overall wealth would also decline and depending on the gravity of the reduction in value, this may have profound consequences.

This kind of unforeseen circumstance has often occurred when a significant proportion of assets are of one type, such as shares in public companies. When the stock market experiences a crash, the value of these assets can plummet and many have been found to have reversed their position of wealth to unavoidable debt. Similarly, storing money with a financial institution can also at times be found to have similar results, particularly when that institution is found to be insolvent and goes into receivership for bankruptcy.

So, from the above can be seen that holding assets entails a certain amount of risk, and the sensible person would diversify or spread that risk over a number of different asset types, and do so in a manner which provides for the unexpected contingencies that human life often throws back at us.

This article was written by George Acheson – he contributes articles about debt advice in the United Kingdom for the website www.debtadvice.co.uk.