Welcome to ‘Finance 101’; your go-to guide and bi-weekly series for breaking down complex finance jargon!
If terms like mutual funds, bonds, or REITs sound like a foreign language, you’re not alone. Trust me, my head used to hurt just thinking about them! 😅 Many people find navigating the world of finance confusing. That’s why we’re here, to demystify even the most mind-boggling financial concepts while keeping things fun and engaging. Because honestly, as we like to say in Naija, “I cannot come and kill myself”. Join us on this journey to boost your financial knowledge and invest in that future! 🚀
Let’s play a quick game.
You: “I just bought a new car! It’s an asset, right?”
Adaora From InvestNaija: Clears throat awkwardly “About that…”
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In the finance world, not everything you own automatically counts as an asset. Especially not the things that look shiny on social media but drain your wallet in real life. 👀
So… what is an asset?
In plain English:
An asset is anything you own that puts money in your pocket not takes it out. That’s it. That’s the tea.
Assets can be:
✅ Things you can sell for a profit (e.g. land, stocks)
✅ Things that generate income (e.g. rental property, dividends, business equipment, mutual funds like the CHD Money Market Fund or Paramount Fund)
The key? They help you build wealth not just flex wealth.
Okay, so why isn’t my car an asset?
Let’s break it down:
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Let's shed some light on what we mean by depreciation shall we? Well, a new car almost universally loses value over time by an estimated 20% or more in its first year, due to wear and tear, accidents etc. This process is called depreciation. However, in Nigeria, not all cars depreciate equally. Popular brands like Honda and Toyota tend to hold their value better, due to strong demand and lower maintenance costs. On the flipside, less popular brands with limited spare part availability will depreciate faster. Unless your car is actively making you money or helping you earn, it’s more of a liability something that takes money from you.
Other Example of Assets Include:
Personal assets can include a land, a home, financial securities, artwork, gold and silver, jewellry. While business assets can include buildings, machinery, equipment, cash, etc.
Assets vs. Liabilities 🤼♂️
An asset is anything valuable that you own or control, something that can make you money or help you build wealth.
A liability is the exact opposite. It’s what you owe, whether it’s a loan, unpaid taxes, or that money you’re still owing your plug.
Assets add to your financial life.
Liabilities? They subtract.
Think of it like this:
- Assets = Friends who always show up with suya.
- Liabilities = Friends who show up empty-handed and steal your last piece of meat.
Your goal? Build more of the first type.
There’s More than One Type of Asset?!🙆🏾♀️
Yes that’s correct! But don’t worry it’s not as complicated as you think. They can be categorised into current assets, fixed assets, financial assets and intangible assets.
☞ Current Assets:
These are short-term resources your business expects to turn into cash within a year like cash in hand, customer payments owed (receivables), inventory, and prepaid expenses like rent.
But not all current assets stay valuable. If someone owes you and ghosts your calls, that receivable may be worthless. Same for expired or unsellable stock it might need to be written off. In short: current assets should be cash (or close to it). If not, they’re just taking up space.
☞ Fixed Assets:
These are the big boys’ things you buy for the long haul. Think: your office building, a delivery van, office equipment, or even that industrial sewing machine in your aunty’s fashion school. They’re not items you buy today and resell tomorrow they’re meant to serve you for years.
But over time, they lose value. Yes, you guessed right – depreciation. It’s how accountants spread out the cost of an asset as it gets older and less effective. For example, a company car might “last” 5 years on paper before it’s considered outdated or worn out.
Some items lose value steadily year after year ,while others drop faster in their early years (accelerated method). Either way, fixed assets won’t hold their full value forever.
☞ Financial Assets:
These are your money-making documents like mutual fund units, stocks, treasury bills, FGN or savings bonds. They’re usually easier to convert into cash and are valued based on market prices. But note that these assets have varying risks and in the case of stocks, one day they are up, next week they could be down it’s all about demand and suppy i.e. what the market says they’re worth.
☞ Intangible Assets:
You can’t physically touch them, but they’re worth something. Intangible assets include things like a brand name, a software license, a patent on your original invention, or a trademarked logo. Companies often treat them like fixed assets; they are “used up” over time and lose value slowly.
Even if you can’t carry it in your pocket, it can still hold serious value.
🧐 So, how do I start collecting assets?
Here’s where it gets interesting and totally doable.
- Start small: Own shares in solid companies (yep, even with ₦10K).
- Think long-term: Buy assets that appreciate or pay you back over time.
- Use what you have: That unused car? Uber. That spare flat? Airbnb. That second laptop? Freelance gigs.
🛠️ Tools to help:
- InvestNaija’s TradeIN module gives you access to real company shares to track and buy without stress.
- Prefer passive options? Chapel Hill Denham offers a range of mutual funds that meet varying risk appetites. You subscribe to these funds via the InvestIN module on InvestNaija.
- The Chapel Hill Denham Money Market Fund is low-risk and asset-based.
- Want more risk, more reward? The (Equity) gives you exposure to a curated mix of high-quality, liquid stocks.
Final Note: Don’t confuse vibes for value
Your iPhone isn’t an asset (unless you’re editing videos for money).
Your fridge full of party drinks? Definitely not.
But your emergency fund, investments, and income-generating skills? 💎 Gold mine.
👩🏾🏫Finance 101 takeaway:
Assets help you earn. Liabilities make you burn (cash, that is).
Next time someone brags, “I just bought a new car,” you can smile and say, “Congrats on the liability!” (just joking but it's a teachable moment).
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