What is an Asset and Why is it important to have more Assets than Liabilities?

If you closely observe a person who is more successful in life, you will find that he might have more Assets than Liabilities.

However if you observe a person who looks more successful then you will start observing that he will have more liabilities than assets. 

The best thing about having more liabilities over assets is that you don’t have to manage your money, because you will not have any at the end of the month.

In this article we will learn the difference between an asset and a liability and understand how to identify them as well.

Let’s understand assets and liabilities with the same statement. If a person is buying a product that is adding money to his pocket, then it is called an asset.

If the product is taking money from your pocket, then it’s a liability. This is a little different from the concept of saving money.

Saving money is mainly focused when a product is purchased on discount or a cashback. Here technically money is being taken away from our pocket, so it is more like a liability. 

Liabilities Are Evil

The term liabilities might sound easy to be taken care of, but it’s practically impossible for a normal person to get out of it. Liabilities will not only take your money but also your peace and freedom.

The biggest disadvantage of having a liability is that you are no longer free to have a peaceful evening until your problem is totally solved.

However people initially will not have enough knowledge on what exactly they are buying.

Most people even think of having a business but endup buying liabilities like office space and furniture. One must focus more on the output revenue and profits because they are the ones that decide if a business is profitable or not. 

House is Considered as Liability

Most People might feel House as an Asset but it’s a liability. For example, if you bought a house for ten lakhs and you are going to shift into that house, then it’s a liability.

Because, in this case you are taking money from your pocket. On the other side, if you are staying as a tenant, you can use the money that you have saved on buying other assets.

For example, if you are buying a normal house, modify it and later sell it, then it’s a kind of an asset because here Money is coming to your pocket.

Assets are Important

The obvious reason behind the fact that Assets are as necessary as oxygen is because of his Financial Education. People might feel money is not important as there are many misconceptions over the concept of wealth creation.

The biggest lie that is ever told by someone is that you cannot have a price tag for all the things. Some might say money can’t buy all you need. Some might say money is evil.

But in the end, money is just a piece of paper that can help everyone to get what they need and sometimes, what they want. 

The basic agenda behind creating money is to have a single source of exchange for products and services. We will discuss the origin of money and exchange in another article. 

Assets are really important for creating wealth peacefully. The biggest advantage of having assets is that one can sleep well and act flexibly in any kind of situation that’s related to money.

If you observe a job holder, he is trading his time, health, talent and skills for the salary he is being paid.

So, technically, he is trading himself for paying his bills. It is termed as rat race, a never ending financial crisis where a member of a family is dedicated to his job for paying debts. 

The Focus Point

As we have to understand the difference between an Asset and a Liability, we have to understand the focus point of how to analyse if it’s an asset or a liability.

We can also focus on turning a liability into an asset that helps increase our wealth.  

Let’s say you purchased a car worth ten lakhs. You are using it for travelling from one place to another place.

You are using it only for exploring new places by travelling. Here, buying a car is a liability because it is taking money from your pocket.

Now let’s say you got a job and you are using it to travel from your house to the office. The salary that you are earning per year is a lot more than the price of a car. Here your car is an asset in building wealth.

However your car is still a form of asset . Because you physically involves in the work and trading your time for the salary. Now, let’s say you lost your job and you started a car renting service. 

So, you appointed a driver and rented your car for professionals and you are getting paid monthly and yearly basis. Here, your car is an asset because you are getting money into your pocket. 

In all three cases, we are using the same car but the way we are looking and developing is different.  So ultimately it depends on the mindset of the person who is handling the situation.

One must cultivate a strong mindset by acquiring knowledge through various useful sources like books, webinars and podcasts. Knowledge and power of mind can give you a way to build assets. 

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