Assets vs Liabilities

In this article you will find out what is an asset and what is a liability. What are the main differences between them, and how they affect your life and your financial situation.

A common problem is that people confuse assets with liabilities and end up in a difficult financial position due to wrong decisions.

If you are, or have been in a difficult financial situation, then this article is for you. Read to the end!

The simplest definition of an asset would be the following: an asset is something that puts money in your pocket. And on the other hand, we can define a liability as anything that takes money out of your pocket.

Now to develop the subject a little, assets and liabilities are not limited to material objects or things, they can also be services, subscriptions, copyrights, etc.

The same thing can be categorised as an asset or as a liability. The difference is made by the purpose of use and the direction in which the money goes: do they come to you? or leave you?

It can also be considered as an asset or liability an asset that appreciates over time, or even vice versa, depreciates over time, even if it does not periodically generate income or expense.

Before continuing with concrete examples, I want to specify that the purchase of assets will make you rich and financially independent, and the purchase of liabilities will plunge you into poverty.

And now read carefully!

Your house, is not an asset! You read it right. Your house, is a liability.

Now we're talking about the house you live in. The house where you live takes money out of your pocket for its maintenance, for its tax and for repairs when it breaks down.

As we mentioned earlier, anything that takes money out of your pocket is a liability. Instead, if you buy a house that you rent and receive a monthly rent, that house automatically becomes an asset.

Because it follows the rule that says: anything that puts money in your pocket is an asset. Exactly the same goes for the car.

Many people consider their own car an asset.

Your own car, with which you go shopping and on vacation, is a liability, because it takes money out of your pocket every month for insurance, petrol, washing, and repairs.

Instead, if the car helps you earn money, for example you use it as a taxi or Uber, rent it, deliver packages or any other activity that brings you more money than you spend, your car becomes a valuable asset.

Another phrase we often hear says this: I need to invest in a new phone. This sentence is essentially wrong.

If your work has to be done with that phone, and buying a more expensive phone you can finish the job faster or you can earn more money, then you are entitled to say that.

For everyone else on the planet, a phone is a liability.

And don't tell us: but hey, I need to call my parents, or I need to take pictures! You can do this with the phone you already have.

If your current phone fulfils the functions you need, then buying a more expensive phone is not an investment, it is just an expense. Your phone even if it doesn't seem to come bundled with a number of expenses.

More and more phones are now sold without accessories, so in addition to the new phone, you also have to buy a screen protector, case, charger, etc.

So we agreed together that the phone is also a liability that takes money out of your pocket.

In the same category is added the laptop or tablet if all you do with them is play or scroll on social networks.

Besides the fact that, these acquisitions bring into your house, liabilities that will make you poor, every time you change your phone or laptop and the old one ends up in the trash, it also produces a lot of pollution for our planet.

So we recommend you to avoid changing them, more often than you really need and not do it trying to impress others.

It's your money, for which you gave in return time from your life, time that you never get back.

The bottom line is that if you make a purchase, it would be good to know if it is an asset or a liability. We're not saying we don't need liabilities. We are human and we like material things.

We like to look good and be appreciated. I'm just saying we should be aware of what we bring home.

If what we are going to buy will bring us money in our pockets or take our money out of our pockets.

Only in this way can we make the right choices, which will lead us to a better future.

Every decision of yours will have an influence on your future.

And your present is the result of your past choices. We don't want to tell anyone what to buy or not to buy.

We just want to help you make wise, educated and calculated decisions. We want to make you understand that assets enrich you and liabilities impoverish you.

That doesn't mean you don't have liabilities! Not!

But you can think that every time you want to buy a liability, you first buy the asset that pays for that liability.

Instead of buying a new car, you can buy an apartment, and from the rent you receive per apartment to pay the instalments for the car.

This way you get the car but the value remains in your pocket! If you want a fitness subscription, buy a few shares for the first time, which will pay you dividends of several tens of dollars per month and so your asset will pay for the subscription for life.

Take care of your money!


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