Assets vs Liabilities: How to Build Personal Assets the Right Way!
Assets vs Liabilities: How to Build Personal Assets the Right Way!
Anyone who wants to achieve true Financial Freedom is probably aware that one of the best ways to do so is by owning assets that put money into your pocket every month.
But how can you know whether the things you own and have chosen to invest in are truly assets or actually liabilities? What is the difference between Assets vs Liabilities and how do you go about building your own personal assets the right way? Read on to find out!
Assets vs Liabilities: What is the Difference Between Assets and Liabilities?
According to Robert Kiosaki's book, "Rich Dad, Poor Dad", "Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets."So itis important tounderstand the difference of assets vs liabilities. You need to be smart about your financesto be sure that you are putting the majority of your money into true assetsthat will put money INTOyour pocket each month instead of the other way around.
So what is the actual definition of assets vs liabilitiesaccording to Robert Kiosaki and other financial gurus?
Asset: An Asset is anything that puts money into your pocket and generates Passive Income and Cashflow. It is an item of Economic Value that can be converted into cash, such as: Real Estate, Gold, Silver, Art, Stocks or Bonds etc.. An asset creates wealth and financial freedomand allows the holder to receive positive cashflow and passive income.
Liability: A Liability is anything you own that takes money OUT OF your pocket each month such as a car, mortgage, rental payment, credit card etc...
In other words, assets create value and wealth over time and liabilities degrade or depreciate in value over time (as well as draining your bank account!)
So, How Do you Go About Building Assets for Cashflow and Financial Freedom?
You may be wondering, what about a savings account, mutual fund or RRSP? Are these assets and do they build cashflow? These might look like an asset because they are earning an interest, but when it comes to assets vs liabilities, we need toremember at the rate and percentage they are growing, when compared to the rate of inflation, your money may actually be going backwards in terms of growth. If your money isn't earning at least 4.5% every year then that may actually be the case, so you need to pay attention to those numbers... While there is nothing wrong with keeping your money in a savings account, RRSP or mutual fund, you just need to be aware of the numbers, because your money may actually be going the other way.
How to Build Positive Growth Personal Assets:
So when it comes to assets vs liabilities, in order to ensure that your money will grow, you need to look at industries that will put money into your pocket and help your wealth to grow. Industries of value to look at will include Real Estate, Art and other valuable items that will grow and build over time even at a rate of 25% or more (versus8-10% in a mutual fund or RRSP, or the2-4% you would receive at a bank!)
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