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Assets & Liabilities: How this affects your life?

Assets are something that puts money in your pocket and in the contrast liabilities takes it out from your pocket.

Isn’t it very easy to understand? Yes, it is but for many people, it is very difficult to identify the difference between asset and liability in real life. In many cases, they think liability as an asset and invest their money in it. I will tell the best example of this case later in this post.

Story Time

For now, let me tell you a story of two people named Mr.Humpty and Mr.Dumpty. Both are classmates 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 but Dumpty is not. Humpty started to invest most part of his salary into money-making assets like stocks, real estates, bonds, PPF etc. But dumpty spending all his salary on luxuries and at the end of the month, he is remaining with empty pockets.

This continues to a few years. All of a sudden country economy slowed down which lead to the loss of jobs of both Humpty and Dumpty. Since Dumpty living on the basis of paycheck to paycheck, he had no money left in his accounts leading him into 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 until he finds another job. This is a story giving a brief about affect assets and liabilities on your life. If your dumb like Dumpty you struggle whole life in financial crisis.

Now it’s the time to give a good example of a liability which is misunderstood as an asset by most of the people. House is considered as an asset but it is not. If you had bought a house on loan you will be paying EMI on a monthly basis which is taking money out of your pocket. If you clear the loan after a few years you have to pay house tax, insurance, maintenance charges which ultimately costs your money. But still many put their money on 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 home it is generating you income instead of costing your money. There are many ways of building assets

Build Assets

If you are making videos on youtube, writing blogs on a regular basis it will generate income. This is a kind of passive income which acts as an asset. There are different ways of building them. Assets can generate income while you sleep. It is a very important part of everyone’s life. Do not waste money on things which 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 stone age, Upgrade to the things which are really necessary to you and which generate income to 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 for you may find interesting https://www.mintpaisa.com/the-power-of-compounding/,https://www.mintpaisa.com/why-you-should-invest-your-money/

Thanks for reading

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