The difference between assets and liabilities
An asset is something that pays you money, while an asset is something that costs you money.
So let’s look at some examples.
Is property an asset or a liability?
Some people may say it’s an asset because it’s something you own, however, if you owe money on that property and you’re not getting a return, then it’s a liability because it’s costing you money.
Is it an asset if you are receiving rent from that property?
Only if you’re making a profit.
Some people would disagree saying, “The property is increasing in value over time.”
Let’s not forget that there are fees to pay plus maintenance costs and insurance to pay on that property, so it could cost you money in the long run, but you’ll have to sit back and do your homework.
Other investment times are less complicated, like the stock market, so let’s look at other types of investment that are active.
Active
your retirement fund
Mutual funds, also known as managed funds
Other investments
business or farm
Learn how to invest your money in items that can be quickly converted back to cash; Some investments don’t allow you to quickly convert the asset back into cash without going through various hoops.
Passive
Any item that has money owed and is your form of transportation, however, there are circumstances where it can be an asset, such as if the vehicle is used as a taxi, which makes it an asset as it generates income. Such costs and money owed on the vehicle may be tax deductible. The same applies to any vehicle used in a business.
Although a vehicle used for work and business purposes may be classified as an asset, money owed on that vehicle is a liability and will be accounted for as such.
The reason so many people are in such a bad financial situation is that they borrow to buy things instead of saving, and therefore pay more for that item in the form of an interest payment.
A pet can be classified as a liability if it is costing you an arm and a leg to keep it. Think of a dog, for example; I read somewhere that it costs $20,000 to keep a dog for its lifetime. That’s not just food, but also vet bills and the like. A dog can be classified as a liability.
take inventory
Before you know where your money is going, you need to take an inventory of all your expenses. Your number one priority has to be debt elimination and plugging those spending leaks that are costing you money. This way you will know where to save and redirect that money elsewhere.
Your task should be to reduce liabilities, which means reduce debt, and then once you have savings, use them to build your wealth. This involves setting goals that will increase your wealth and not send you into poverty.
There are a number of stock trading platforms where you can pump money into the markets. Take advantage of them as they are a great way to build your financial education.
