Understanding Assets And Liabilities

Assets and Liabilities – Are you working for your money or is your money working for you?

Assets and Liabilities are two of the most misunderstood things in this world and for most who do not have great financial habits understanding them is one thing that can help tremendously to bring things in line for you.

An Asset is something that puts money into your pocket without the need to work for it.”

Using money you have earned to invest into a venture that makes you more money (over and above your original investment) is an Asset.Renting out a house you own (as long as the rent collected covers your costs) is an asset. Money in savings or money loaned out that is collecting interest for you is an asset. Shares bought in a well chosen, high performing company that gives you a handsome return periodically is an asset. Well researched precious metals bought that continue to go up in value is an asset. Any business that has made more than the cost of setting up and running it (including start up capital) is an asset. Any item that you have either made or bought that you sell or resell at a profit is an asset. A car that works for you, i.e. a taxi or limo service that makes more than what it costs to run is an asset. A computer that you use to make money online (after the cost of the computer and what it takes to run it is taken out) is an asset.

A Liability is something that takes money out of your pocket.”

Your house, if you own and live in it, is a Liability. If you paid cash for it, it owes you that amount, if not then you are paying the mortgage, utilities, insurance, maintenance and any other costs associated with owning and living in a house. Only when you sell your house and you make a profit (after all costs have been deducted on it) does it become an asset. Your car is a Liability. You must pay to maintain it, insure it and put gas into it. The exception would be if your car was an integral part of your business and the profits far outweighed the costs, it is then an asset. Grocery items, insurance, entertainment, purchases for the home, hair cuts…..anything that is only taking money out of your pocket is a liability and the big shocker is your job….most jobs are liabilities, why? Ask yourself this question: Are you being paid what you are worth? You are trading time for money and working for your money instead of having it work for you.

For most, the daily grind of going to work, paying the bills and saving a little for vacation and retirement is purely an existence in liability. Making the switch in your mind from liability thinking to asset thinking can be challenging but if there is a will there is always a way and if the thought of having money working for you to produce more assets is not enough to get you thinking of ways to make that happen then I don’t know what will. It is a great thing to have your fingers in several pies but start off with one at a time and build up. Robert and Kim Kiyosaki are masters at getting their money to work for them. I remember a story Kim told at a seminar where Robert had expressed an interest in a very expensive car. Kim told him that if he invested in something that produced the money for the car, then he could have it…..and that is exactly what he did! Their book, The Cashflow Quadrant, explains assets and liabilities perfectly and is a great book for those wanting to understand money and how to use it better.

So, the lesson to be learned here is to earn your money first, invest some in something that will continue to earn you more money while you sleep, repeat the process and eventually you will have more than you know what to do with!

Author: Leanne Opthoog
About the Author

Travelling Kiwi and Global Entrepreneur, my loves are my family, travel, internet marketing, self development, experiencing new things, great food and company, movies, shoes, bags, great clothes, making new friends, empowering and inspiring people to create and realise their dreams and just generally having heaps of fun!!! For more informative articles please visit http://www.empowernetwork.com/leanneopthoog/

Article Source: http://www.articlesbase.com/wealth-building-articles/understanding-assets-and-liabilities-6654508.html

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