Assets bring money into your pocket. On the other hand, liabilities take it out from your pocket. It is easy to understand. Am I correct? Yes, it is. But for many people, it is difficult to identify the difference between asset and liability in real life. In many cases, they think of a liability as an asset and invest their money in it. I will tell the best example of this case later in this post.
For now, let me tell you the story of two people named Mr Humpty and Mr Dumpty. Both are classmates who got out of college with jobs having decent pay. Both are leading a happy life but there is a small difference between both of them.
Mr Humpty is financially literate and Dumpty is not. Humpty started to invest most of his salary into money-making assets like stocks, real estates, bonds, PPF etc. On the other hand, dumpty is spending all his salary on luxuries. At the end of the month, he is remaining with empty pockets.
After few years, the country economy slowed down. Humpty and Dumpty both lost their jobs. Because of the Dumpty lifestyle, he had no money left in his bank accounts. He faced a financially critical situation. On the other hand, Humpty was investing from the beginning. So, losing a job doesn’t bother him much because his assets are generating income to meet his expenses. This story giving a brief about the affect of assets and liabilities on your life. If you are dumb like Dumpty, you struggle your whole life in a financial crisis.
Now I feel that it is time to give an example of a liability that is misunderstood as an asset by most people. House is considered as an asset but it is not. If you had bought a house on loan you will be paying EMI every month. Here, the EMI is taking money out of your pocket. If you clear the loan also, you have to pay house tax, insurance, maintenance charges which ultimately costs your money. But still many invest their money in a house because of emotional attachment towards own house. There is a way by which you can turn your home into an asset instead of liability is by renting it. If you rent your house it is generating you income instead of costing your money. There are many ways of building assets
If you are making videos on youtube, writing blogs regularly, those will generate income. It is a kind of passive income that acts as an asset. There are different ways of generating passive income. The Assets can generate income while you sleep. Do not waste money on things that depreciate with time.
If you are addicted to buying every latest version of mobile on the market. Think once the next mobile phone which you are going to buy is also a phone. The basic purpose is to communicate it can still be done with your older mobile. I am not saying you to live in the stone age. Upgrade to the things that are necessary to you and which generate income for you. If you don’t build assets you will end up your life working and paying bills.
Try to build Assets not Liabilities and the best form of investment which you do is only by investing in yourself with useful practical knowledge. You can read more about assets and liabilities here – https://www.investopedia.com/terms/l/liability.asp
Here are some of the links you may find interesting here
Thanks for reading