Often, when we hear of assets vs. liabilities, we get confused about the true meaning of a liability and an asset. If we follow Robert Kiyosaki’s teachings of “Rich Dad, Poor Dad,” we’ll learn that a house is not an asset but a liability! What does this mean?
Short explanation is that an asset puts more money in your pocket whereas a liability takes money out of your pocket.
What is a Liability in Personal Finance?
If you are still struggling about the difference start by watching the video in our Financial Freedom 20xx YouTube channel: Explained: What is a Liability. In the video we explain the core concept behind the liability.
Key takeaway of the video should be that you must identify what is a liability and the fact that if you want to get rich, you must have assets to pay your liabilities.
- Liability takes money out of your pocket
- Your house is a liability even if you have paid your mortgage because it costs you to live in your house
- Car is a great example of a liability
What is an Asset in Personal Finance?
An asset is something that puts money in your pocket. If you own something that makes you money while you sleep it is a sign of an asset. We give you a detailed explanation of an asset in our YouTube channel in this video: Explained: What is an Asset.
You should always remember that to gain real wealth you must buy as much assets as possible. If you don’t have skills to climb the corporate ladder to the highest positions or you ain’t got skills to be a professional highly paid sports athlete. The assets are the most important opportunity for you to build real wealth.
- Asset put more money in your pocket
- If you own something that makes you money while you sleep it is a good sign about an asset
- Stocks, ETFs and real estate are great examples of assets
You should always try to get as much assets as possible. When it comes to liabilities you should only have the absolute mandatory liabilities and the liabilities that you can pay with the money you get from your assets.