A fundamental skill to possess in order to lead a healthy financial life is to be able to spot the difference between assets and liabilities. Investopedia.com defines asset as “a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.”
Conversely, it defines liability as “outside of accounting and finance, liability refers to any money or service that is currently owed to another party. One form of liability, for example, would be the property taxes that a homeowner owes to the municipal government.”
Now we’ve all heard the saying to become rich, one must only buy assets. Robert Kiyosaki, in his book Rich Dad, Poor Dad, defines assets as “things that put money in your pocket” and liabilities “as things that take money out of your pocket.”
That simple, eh?
Image courtesy of scottchan / FreeDigitalPhotos.net
Indeed, if it is so simple, why aren’t most people rich? This is the same question a young Kiyosaki asked his rich dad many years ago. And rich daddy said, most people don’t know the difference. He added that the middle class buy liabilities thinking they are assets.
Assets vs. liabilities
To illustrate, let’s take, for example, a house. Most people see a house as an outright asset. Kiyosaki, however, insists that a house only becomes an asset if it’s being rented out. If the owner lives in that house, which, needless to say, requires him to allot an amount for maintenance and other expenses every month (not to mention, taxes), then the house is a liability because it takes money out of the pocket – something to think about if you’re contemplating on applying for a home loan.
Similarly, a car, for instance, becomes an asset if the owner uses it as a passenger taxi to bring in extra cash. Otherwise, given the soaring prices of gasoline and the cost to keep the car in good running condition, it is a liability – another point to ponder if at this point in your life you feel the need for a car.
My take
I have great respect for Kiyosaki and his beliefs, but in my opinion (and I’m playing by my emotions here), a house still is an asset because families need a place to live, to nurture bonds and lasting relationships. On the other hand, much as I live near my place of work and I love the fact that I can walk to and from the office if and when I so please, a car I can do away without even noticing.
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It seems that you have plenty of knowledge about this and looks related to your profession.
Napadaan lang po. Happy Holiday!
Plenty is an overstatement, Henry. I read and research, that’s all. 😀