Assets and liabilities: what are they?

Business

Robert Kiyosaki of ‘Rich Dad’ fame says that an asset is something that puts money in your pocket. This is a great definition and it gets to the core of what an asset is.

Most of us say that our home is an asset. This couldn’t be further from the truth! Ask yourself, “Do you put money in my pocket every month?”

When you find out you’ve paid off your mortgage this month, paid your electric and gas bills to heat it, and spent thousands of dollars repairing your old roof, you’ll think no!

Now, if you’ve rented the spare room and the tenant pays you enough to cover your mortgage, monthly heating and insurance bills, and some money for repairs and maintenance, then your home can be an asset.

What should not be taken into account in the calculation is the equity in your home. Although we live in times where property values ​​go up, sometimes it doesn’t, so we can’t rely on that as regular income, whereas your tenant’s rent is. (Suppose you have a good tenant).

So the next time you spend money on something, will you get any money back, and at what rate will you get it back? These are the kinds of questions wealthy investors often ask.

If you spend money on ‘Doodads’ or expensive toys, then that is up to you, but that money is completely lost and can only be partially recovered if you sell those toys later.

A liability then, is the opposite of the above, it is something that takes money out of your pocket. Something that you can rent over the years, like a car, a television, or your house, is a liability.

Obviously, to have a better lifestyle the idea is to reduce your liabilities and increase your assets. Said in plain language, it just means seeing where you spend your money.

Deciding on a good lifestyle balance can be difficult. You want to enjoy yourself a bit, so toys may be good, but don’t go overboard. Think before you spend.

Ask yourself questions like ‘Would it be better to buy the new car outright?’ Instead of renting it. Remember that all rent is dead money, you will never get it back. It should be on the receiving end of the rent equation and not on the expense side.

Once you understand the differences between assets and liabilities and put a plan into action, your wealth will grow!

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