Do you really know the difference between assets and liabilities? I know I felt a bit mislead initially at school, colleagues at work, by friends or by family until I learned the real definitions of these two words from one of the best financial books out there — Rich Dad Poor Dad by Robert Kiyosaki. So before you can venture off on this TIME RICH journey of yours, you must first change some of the vocabulary in your head!
What are assets?
Simply put, these are THINGS THAT PUT MONEY IN YOUR POCKET! For example, an asset could be a piece of real estate or an apartment building collecting rent money. It could also be a company you own, stocks, GIC’s, bonds, high interest savings account or anything that will earn you money. If it makes you money (no matter how big or little), it’s an asset!
However, an asset can also be anything that brings you VALUE in your life. And by that definition, my wife & kids are surely big assets in my life! 😉
What are liabilities?
Simply put, these are THINGS THAT TAKE MONEY OUT OF YOUR POCKET! For instance, people buy cars, boats, or even the items they think are assets like their own home — which are in fact a liability! Why? Because they all take money out of your pocket!
But wait, you might ask…
“Didn’t you just say buying a piece of real estate is an asset? Then why is my home a liability?”
Yes, while I did say that in the above, there is more to it than meets the eye. There is a BIG DIFFERENCE between a real estate property that you live in (and pay $$ to maintain) versus a real estate property that you rent out to others and collect monthly rent money! Assets are supposed to make you money while you sleep and liabilities simply drain you of your money.
We’ll talk about that more on my next topic: “Sorry, but your home isn’t a good investment.“
The bottom line…
You have to buy income-producing assets (not liabilities) in order to reach financial independence! And if you someday wanted to buy those fancy luxuries life has to offer (like sexy cars, yachts, or jewelry), you can do so, BUT you have to buy the assets that will pay for those luxuries first! Why? …because that’s EXACTLY what the rich do! Rich people buy assets first because the profit from those assets pays for their luxuries. 😉 Food for thought!
