ASSETS AND LIABILITIES EXPLAINED

fotolia_8145568Everyone wants to earn more money, live a healthier lifestyle and travel. I would guess that more than 90% of people in almost any part of the world would agree to that statement. The problem is, most people don’t know were to begin in achieving one or more of these things. When it comes to money, it starts with understanding the difference between an asset and a liability.

Let’s define what these terms mean.

Asset – anything that puts money in your pocket is an asset. Plain and simple. But most people confuse what they mean quite often, or at least, they confuse the things they own for one instead of the other. So let’s put it simpler, most things poor people own are liabilities. Most things rich people own are assets.

Liability – Anything that takes money away from you. That means, you pay money to own, use or keep the thing you have.

That is the difference between the rich and the poor. Let me illustrate more clearly with this image:
liabilities and assets Yes, even your cellphone is a liability. One of my favorite writer and perhaps the father of financial literacy Robert T. Kiyosaki couldn’t have said it better:

The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets. The poor and the middle class work for money. The rich have money work for them.

That is why I have his book on my list so make sure to look at the recommended reading section.

The reason real estate smack dab in the middle is because real estate is often confused for an asset when it’s really a liability. But it can be turned into an asset. It all depends on how you structure it.

Most people confused real estate for an asset when it’s really a liability

The reason for this is not because people are dumb, but because they were not taught. Our financial education system is horrific. That leaves a lot of uninformed people not knowing how to make money work instead of them working.

This is brings back up the question on structure. How can a real estate property become an asset? Simple, don’t live in it, have someone else live in it and pay you rent. By doing that, you turn it into an investment property. It becomes an asset because it is not putting money in your pocket.

That’s how the rich, most of who are no smarter than the average person makes money. Most rich people had or have financially savvy parents. Or they learned on their own. In this day and age, with information right at everyone’s finger tips, all that’s left is the will to look for it. So why not you?

Get financially smart and see your money grow.

Tate -

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