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Saturday, October 16, 2010

Assets vs. Liabilities : Understanding the difference.

In order to get your finances together, We are going to need to know the difference between an Asset and a Liability.  The pluses column and the negatives column.




Dictionary Time

Asset
2.  a single item of ownership having exchange value.
a. items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate ( opposed to liabilities). 

Liability


1. a. moneys owed; debts or pecuniary obligations ( opposed to assets).
    b. Accounting . liabilities as detailed on a balance sheet, esp. in relation to assets and capital.
  
Now most people believe that their possessions are assets and in reality they are, but we aren't going to think like most people. We are now thinking like financial guru's. This means that from now on an asset is something that brings you money, whether its a paycheck or a mesothelioma injury lawsuit that is paying handsomely because you found a great attorney/lawyer (same thing). This is how the author of Rich Dad, Poor Dad thinks and it makes sense. 

Reasoning for this thinking:   When your filling out paper work for a loan and have to show your assets, by all means please list your golf clubs and your ipad. But when doing our own financial counseling we have to be honest with ourselves. When you list your championship golf club on your papers you would mark it as how much you paid for it. This is a lie because if were to sell it at that very moment you would be S.O.L to get back what you paid for it.  Even when people mark their cars, a brand new one will lose up to 20% or more as soon as they drive it off the lot. So from now if its not bringing us money directly, its a liability.
I love this photo.

Liabilities. These are our bills. For our reality checks, we are now also listing our house, our cars, our kids (financially, stick with me I have a heart)  and anything else that requires our time, money , maintenence etc. as a liability.
Unless your kids get jobs and you make them pay rent or sell them to slave labor then they can go under assets (joke)
Side note: Things are not concrete and you can change a liablity to an asset at any time with some creative thinking. Renting your car out , or a room in your house. or my joke. These things can change a liability into an asset.

Assets and Liabilities, what are yours? Know Thy enemy!


Protip; Positive thoughts lead to positive actions lead to positive results. 






30 comments:

  1. Very useful information. I need to get my finances in order

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  2. woooww this is some fasinating stuff. Come check out da tunes in my space.

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  3. I love the picture of tiger hitting the ball, the cigar guy to the right is just too funny ahaha.

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  4. great, useful info...following...showin love

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  5. Good information, thanks, bro!

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  6. Guess that's a different way to think about things, thanks for the insight.

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  7. Basic insight/ building blocks. Yes, great for everyone. I hope you post another update that shows possibly a follow up and a more in-depth look at how this creates businesses and ideas.

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  8. My life, all liabilities, no assets.

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  9. This is like accounting?

    Also, that pic always makes me laugh. The cigar guys expression is priceless.

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  10. I needs more assets and less debts..:(

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  11. Huh. I guess I never really thought of it that way.

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  12. YEA AMERICANS HAVE ALOT OF LIABILITIES

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