Gain Wealth: Assets, Liabilities and You

The dictionary's definition of asset is long and vague in some parts, which could be another reason why so many people don't understand what it truly means. The same goes for liabilities--most don't understand what they are and how they can affect you and your quality of life. Let's break it down into bite-sized chunks and then you can see how important both these terms are to you building wealth.

Liabilities are things that deduct from your incoming earnings, or cash flow, and come in the form of cars, boats, golf clubs or anything else that's not as essential that requires money constantly going towards it. Once you get into or start your own business you'll come across a few different kinds of liabilities classified as current, long-term and contingent but for the sake of this article, we'll keep it on a personal level. These can be detrimental to your wealth management simple and plain.

Assets are usually mistaken from the jump by the common man because of the mindset passed down from their parents where they're told to "work hard and get a credit card to build your credit score" and "save your money" so you can buy a house to retire to. What seems like sound advice isn't quite so. Most don't know the vicious cycle that they are susceptible to by doing this. Credit cards are so easy to rely on that before you know it, you're deep in debt. By knowing how money works, one can better situate themselves to become wealthy. Back to the subject at hand, assets are things that brings more money back after its purchase. Good examples would be real estate, franchises and stocks, just to name a few, but can be many other things as well. The underlying theme is that it's making more money than what you put into it. Houses can be considered an asset only if you don't have to "come back to it" financially and figuratively.

A simple math equation that will help you understand it better is wealth = money generating assets - money draining liabilities. The secret is to take the positive cash flow and invest it back into money making ventures. That's how the "rich get richer". Want In? Thought you did.