Assets VS. Liabilities

“The big mistake that poor and middle-class people make is spending their lives buying liabilities instead of assets.”

Robert Kiyosaki

Robert Kiyosaki’s first rule is to know the difference between an asset and a liability and to buy assets. This is the topic this blog post will concern itself with. Today you will learn the basics of assets and liabilities. First things first, what is an asset and what is a liability?


An asset is an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

A liability is an item that is an obligation for a business or what you owe other parties. 

Or, in Kiyosaki’s words:

“Assets put money in your pocket; liabilities take money out of your pocket.”


Assets

Again, you will want to invest in assets because they will put money in your pocket in the future. You will make money with them passively, which means you won’t have to do anything for them to make you money after you have bought them. They will make you money in your sleep.

In the business world, assets can include owning a big Apartment-Duplex, which will make you money passively through rent. But I will focus on assets for teenagers or young adults. 

Assets accessible for teenagers include high-yield savings, stocks, bonds, college savings plans or even retirement accounts. Another asset can be starting your own business, although, of course, there always comes a risk with that, and it can quickly turn into a liability. 


Liabilities

You will want to stay as far away as possible from liabilities, or at least not only buy liabilities. Liabilities take money out of your pocket but, ironically, are often the things we often enjoy the most. An example of a liability can be a car. You pay a lot of money for your car and will continue to pay because of your car, for example, gas or insurance. 

Liabilities cost you money but don’t make you money, but we can’t stay away from them altogether. The goal is to have balanced assets and liabilities and, ideally, more assets. 

Often, the difficulty is to distinguish whether an investment will turn out to be an asset or a liabiltiy. The primary difference between assets and liabilities is that an asset is anything owned by the company to provide economic benefits in the future. In contrast, liabilities are something that the company is obliged to pay it off in the future.


Differenciate Between Assets And Liabilities

Source: Assets vs Liabilities (wallstreetmojo.com)

“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.”

Robert Kiyosaki

So in the future, maybe try to think if you really want to spend money on a liability when you could invest that same money in an asset that will make you more money in the future. 

Also, if you want to know more about this topic I would advise you to read “Rich Dad Poor Dad” by Robert Kiyosaki.

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