Is It An Asset Or Liability?
Whatever your opinion of Robert Kiyosaki or his theories, he has some original and great ideas regarding how to manage your money and assure future finances. His many books and videos, centre around what he terms a ‘Cashflow Quadrant.
Robert constantly tries to simplify his belief that making money can be easily demonstrated by a square divided into four boxes. Moving from left to right and top to bottom, the idea is to move through the stages Employee, Business Owner, Self-Employed, Investor.
I would strongly advise WA members to further research Richard’s methods. Especially his book Cashflow Quadrant.
My Own Definition
Having examined Richard’s methods closely, I have come to the conclusion that we only need to concentrate on two areas to succeed:-
Liabilities and Assets:-
In our dealings with everyday life, commerce and business, financially speaking, we only ever encounter liabilities or assets.
Liability = any action, practice, physical object or financial instrument that takes money from our pocket
Asset = any action, practice, physical object or financial instrument that puts money into our pocket
Examples of liabilities are your mortgage (or rent) they take a certain amount of cash from your bank account every month. Car payments do exactly the same thing. You phone costs you regular monthly payments. Your cable, TV, or streaming package similarly takes money put of your bank account.
Examples of assets are earnings. However you earn your living will determine how you can afford your liabilities. Assets can be eBay, Etsy, Amazon, affiliate sales or any kind of online sales. Any practice that results in a recurring income, online or offline, are assets. Any enterprise whereby income will flow into your bank account is an asset.
Many misconceptions arise when people are forced to list their assets.
To be clear, unless what you term to be an asset is putting money into your pocket on a regular basis – it isn’t an asset.
A house, unless you rent it out, and it regularly brings in more than you pay out for it upkeep, is a liability.
A car, unless it pays more than you spend on it – like it is a taxi, or carrier of some sort, is a liability.
Investments, whatever kind they may be, almost always depreciate in value over time, and are therefore liabilities. Exceptions are those that hold their value. When you become skilled at recognising this you will become unstoppable.
Until then, I would advise maximising your asset in whatever way you can, and minimising your liabilities.
There will always be liabilities somewhere, you just need to be aware of them, keep control, and not allow them to dominate.
Stay Safe
Kevin
Saving methods
Recent Comments
3
Thanks Kevin
When I look around me I see more liabilities than assets. I am aware of them. My daily struggle is to Create more assets so that I don’t have to work in my old-age.
Jane
Very true, Kevin! Thanks for reminding us! I am constantly reevaluating my assets and liabilities, almost on a monthly basis!
Jeff