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 is an asset because it is something you own, however if you owe money on that property and you are not making a return then it is a liability because it is costing you money.

Is it an asset if you are receiving rent from that property?

Only if you are making a profit.

Some people would disagree saying, “The property is increasing in value over time.”

Let’s not forget 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 down and do your homework.

Other investing times are less complicated, like the stock market, so let’s look at other types of investing that are active.

Assets

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 turned back into cash; Some investments don’t allow you to quickly convert the asset back into cash without going through several hoops.

Passive

Any item that has money owed on it 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, making 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 find themselves in such poor financial shape is that they borrow to buy things instead of saving, and therefore pay more for that item in the form of interest payments.

A pet can be classified as a liability if it’s 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 over its lifetime. That’s not just food, but 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 inventory of all your spending. Your number one priority has to be eliminating debt 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 reducing 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 inject money into the markets. Take advantage of them, as they are a great way to build your financial literacy.