We spend our adulthood working in 9-5. We keep on churning our minds for earning money from regular jobs, not realizing that it may not be enough. Well at least, for most of us.
But what if you have enough money in your savings? What if you have more income from your job? What if you can make money work for you instead?
What are Assets and Liabilities?
The first secret of letting money work for you is knowing the difference between assets and liabilities. So first, let’s understand what assets and liabilities are?
Assets
Assets are known as “assets are investments that make a profit.”
An asset is anything that adds money to your pocket. Sometimes it may be a medium by which you are getting money. In terms of commerce – an asset is used to create value or cash.
Liabilities
Liabilities are known as “ investments that drown you in the loss.”
This is anything that takes money away from your pocket and savings. In other terms, it subtracts the value of your total worth and decreases your capital or money.
Assets vs Liabilities – The Difference
As discussed earlier, an asset will add money into your pocket, and liability will take money from your pocket. Assets build your capital, and liabilities decrease your wealth.
Let’s understand it with two examples. For instance, let’s say you bought a car with the idea to live in it for a lifetime. However, it adds up with a lot of expenses that you need not only to buy the property, but also the mortgage, painting, furnishing, infrastructure, and several others.
Furthermore, you have to maintain your house, which again, needs more expense. Thereby, housing will continuously cost money from you.
So for you, would you consider a ‘house’ as an asset or as a liability? If you answered ‘Liability’, then you’re right!
But let’s look into it from another angle. Let’s say you purchase real estate in order to either resell it or rent it for other people to live on. Then this way, the same property can give you another source of income. In this case, it’s now considered an asset.
What about your car? Your car is a significant liability. Once you buy a car, its price consistently flows down. So if you resell it, you have to sell it at lower prices. It’s an investment that puts you at a loss.
They were talking about some rare or unique cars like the ones which are limited edition or historic vehicles. They serve as exceptional cases as their worth or price increases over time. Here, we are not considering those particular cases, and evaluating your car and home as assets is insane.
Types of Assets
Now when you know the value of assets in life, why not understand the different types of available assets that can support you in making money out of them. Here are four major types of assets:
- Real Assets – Real assets have some intrinsic value. Intrinsic value is the real value of assets. Examples are real estate and companies, which have their real value independent of market dominance.
- Financial Assets – These assets can be converted into cash more readily than real assets and is derived value from the market price. If the market price increases, their value increases, and vice versa. Examples are stocks and bonds.
- Tangible Assets – As the word suggests, tangible assets are assets that you can touch, feel, and interact with them. Examples are land, real estate, metals, equipment, and so on.
- Intangible Assets – These assets can’t be touched, since they cannot be seen physically. Examples are knowledge, skills, brand, and so on.
Now that you have an idea about assets and liabilities, you might ask about another thing related to these two, which is called the master of all assets – ‘Stocks‘
What are Stocks?
Stocks are shares of any company. Shares, on the other hand, mean a small part or portion of that company.
Stocks are like bricks of a house. One brick is equals to one stock of that house. If you believe the stock, you buy a small proportion of that company. This means if the company makes a profit, you will earn some profit on your stock or share. If the company goes in loss, you will have to bear the loss on your shares of that company.
Do you Consider Knowledge as an Asset?
Knowledge is the most significant and tangible asset in this entire world. It is something nobody can steal from you. It will help if you keep upgrading your knowledge and skills as per the market needs and demands.
The return on investment of your ability is tremendous and immeasurable. For example, as an entrepreneur, if you learn some new skills like marketing and sales, you will grow. Also, you will make profits by practicing your newly discovered skill
The bottom line is assets and liabilities are both in deep relation to money. It’s up to you how you control yourself from buying liabilities and direct yourself on the path of buying more and more assets.
