Assets and Liability are the two most important factors to concentrate when you create your net worth. Knowledge of asset and liability plays a major role in your personal finance and wealth building.
Once you start making money you should know how to make assets and how to make fewer liabilities. And for people who are yet to know what is an asset and liability, let me explain to you in a simple way.
It is something that is valuable or a source that can be converted to cash, which in general gives you money.
Assets are further classified into the following
Appreciating assets- Assets like Real Estate, Property, Gold, Stock, Mutual Funds which increases or decreases its value year on year depending on the market conditions.
Depreciating assets: Car, Phones, Electronic appliances, etc which only decreases its value year on year and increases your monthly expense maintaining it.
Personally I spend less on depreciating assets like, I buy a mobile phone within a budget of Rs 15000 or less because the value of the phone will reduce year on year. Whereas, if you invest the same on other valuable assets like gold the value will increase according to market conditions.
Liabilities are nothing but which eats your money, for example, the loan you bought to buy a car or a property or an EMI.
In India, most of the people get this liability column with EMI’s, as soon they end up with an Income. This practice makes them go hand to mouth condition.
Liability is one thing that we have to be careful about when we build our wealth and improve our net worth.
Our goal should be keeping our liability column with a minimum entry. Frugal Living can help you to cultivate a financially disciplined life. When your liability is less than your assets that’s when you are progressing to be financially independent. The Rich Dad Poor Dad book gives you a better insight into asset and liability.
Very nicely explained. I’ve heard a lot about Rich Dad, Poor Dad but ithu varem vayichittilla!
Like they say “ endu nala nadakatha swapanam “