The income test
Which of these actually produces income?
An asset without income is a liability. The real asset is the income. We cannot buy food with a condo, but the rent from one can. Try the same test on everything in this list.
| The thing | The test | Verdict |
|---|---|---|
Salary What this meansThis is the largest source we have, and the one most dependent on our health. That is why it needs protecting before anything else. | Money comes in every month, but it stops when the body stops. | Active income |
Body and mind What this meansWhile we are healthy, we are the best asset we own. Nearly everything protective in this check exists to protect this one asset. | This is the engine that produces the salary every month. | The original asset |
The house we live in What this meansThe house stays important to the family. In income terms, though, it only becomes an asset once it is sold and the money is in hand. While we live in it, it cannot buy food. | The value rises, but no money comes out. The instalment goes out every month. | Sleeping asset |
A house we rent out What this meansIt passes the full test: it still pays when we are ill or out of work. This is what a real backup source looks like. | Rent comes in every month, above what it costs. | Passive income |
The car What this meansInstalment, petrol, road tax and servicing. We may well need it for work, but on an income list it sits on the spending side. | Produces no money, and eats money every month. | Liability |
ASB and Tabung Haji What this meansStill counted as passive income, because it pays without us working. Growing this share is exactly what the future stalk is for. | Dividends come in every year, even if small. | Small passive |
A critical illness certificate What this meansIt is not an asset while we are healthy. It turns into replacement income on the day our original asset stops working. | Pays nothing at all while we are healthy. | Replacement income |
The full test has four questions. The two that matter most: does this thing put money in every month, and does it still pay when we cannot work.