Due to the nature of consumption, a person needs to continually provide the means to pay for these goods and services. Unfortunately, not all of us have a never ending source of financial security. If you have limited resources, it is not only necessary to look after the assets you already have, but also to regularly create new assets in order to build wealth and survive the unexpected circumstances that may present themselves from time to time.

Most people earn money from employment, and this is probably the most common way in which people build on their assets base.
Each week or month, remuneration from employment is received and immediately becomes an asset. This can pay for the liabilities incurred in maintaining an individual’s existence and any excess contributes to a person’s existing assets. Should this manner of maintaining assets cease, there can be significant ramifications for individuals; mortgage protection life insurance may be able to go a substantial way to protecting your remaining assets.

Others may create assets by risking their existing assets in ventures that provide a return, which serve to cover their liabilities and increase their asset base and therefore their net wealth.
The greater the risk undertaken, the greater the reward or return received, and it is this premise that underpins the majority of financial transactions taking place in the modern economy.

To place your money in the Bank of England is probably the safest place available, and consequently the return a person receives in the form of the interest they are paid reflects the low risk incurred. This will be found to be much lower than that of an unknown private bank who, in order to attract funds, will pay an individual a much higher rate of interest on deposits.
As an example, the Bank of England currently pays 5% interest for the notes it issues whereas other commercial banks will pay up to 6.5% on deposits received.

Similarly, a person who starts a business by purchasing products, goods or services in order to resell them to others is taking a greater risk than merely placing money in a bank account. Accordingly, they expect a much higher return on their investment. In this case, a profit is made by purchasing a good or service, adding value to it through labour or modification, and subsequently charging the customer a higher price to reflect the risk taken. In this case, it would be deemed wise to consider the benefits of business life insurance in order to protect assets, shares and employees.

At the extreme end of the scale, a person may choose to place their assets in an exceptionally risky venture. This could include, for example, investing in an enterprise that may or may not succeed, such as a newly listed public company or one of scientific exploration. These types of investments will not fail to yield a handsome return if successful, but since they have a large probability of failure it is often the case that the entire investment is lost when the venture experiences no success.

Filed under: Health Care

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