Assets VS Liabilities

What are assets and liabilities?

Assets are what a business owns and liabilities are what a business owes.

If you fold two halves of paper and write liabilities on one end and assets on the other, you will notice a greater amount on the liabilities side. Why is this? Because the world needs to generate money, the 80/20 principle comes into play, 80% of what you will purchase will be a liability, 20% will be an asset.

Here are some examples:

Assets: Liabilities:

Cash Homes

Investments Vehicles

Inventory insurance

certificates of deposit taxes owed

Saving accounts Bank debt

Market accounts wages owed

Fuel

Home heating

Power bills

Water bills

Etc..

You may be thinking, “how are Vehicles and homes liabilities if they help us travel, keep us protected, and warm” As they do benefit us in many ways, we are constantly paying bills for them, weather you got a small scratch on your vehicle and need to pay $400+ for repair, or you forgot to pay the heating bills this month and are struggling to pay them off. All your hard earned money is constantly being thrown to them, and they're not cheap.

When I was younger we would all gather so my father could read “rich dad poor dad” to us every night, he would question us on liabilities and assets until we got them right.

If you've never read the book, it's about two friends whose fathers are in two very different situations. poor dad is in debt, he only buys liabilities and is struggling to keep a roof over their heads but believes it's the only way to do it. Rich dad always thinks in terms of opportunities, he only buys assets, no liabilities, no debt, and is thriving

“Fear and self-doubt are your greatest barriers to success”

Some lessons you can take from this:

You will learn with experience

Choose several streams to work

Start fresh with a new mindset

Money was invented by the rich

Make your savings, your investment

Make a team

Categorize good and bad debts

Be strong in a period of recession

Design and implement your business properly

If you're interested in anything listed above I suggest you read some of Robert T. Kiyosaki’s books.

Now, you might be familiar with the term Equity. Equity is what's left over, it is a company's total assets minus its total liabilities. equity represents the amount of money that would be returned to shareholders if all of the assets company's debt was paid off. If equity is positive, the company has enough assets to cover its liabilities. If negative, the company's liabilities exceed its assets.

Equity = Assets - Liabilities

A shareholder is also known as a Stockholder, it is any person in a company or institution that owns at least one percentage of a company's stock. They also have certain rights such as voting at meetings to approve of things like members, dividend distributions, or mergers.

Back to the assets and liabilities, As you will face them in your job, you will also encounter them in your everyday life. As I said before, cars and homes count as a liability, saving accounts and cash are major assets.

When you're at the mall next, browsing through aisles I want you to think of liabilities and assets and list any assets you find, like computers, they can generate money, that can be an asset. You’ll notice that 99.9% of the store is only liabilities, but it's the store's asset because you're generating them money whenever you purchase something. It's a win lose situation.