Clearly Differentiating assets from liabilities

The mistake that most of us make is focusing more of our resources on liabilities rather than asset and funny enough there are people who do not even understand the difference between an asset and a liability, I am not an expert but I am going to explain in the little way I understand.

Assets are things that contributes to a person’s financial growth and liabilities are things that extract funds from a person’s financial growth.

Source

Examples to differentiate assets from liabilities.

Mr Ray and Mr Blue work in an advertising firm that pays them well, as a form of bonus apart from their monthly salary, their boss decides to gift them $1,000 remember that this fund was not expected and it was an extra cash more than the usual monthly income generated. Mr Ray decided to gift himself a new car, he had been saving up for the car and the $1000 bonus just helped him actualize his dream by buying the new car.

Mr Blue on the other hand decided to invest the $1000 in a reputable stock he had researched about and they both forgot about the money. Mr Ray had a brand new car to drive around and he even got himself new friends as a result of the new car.

Five years down the line however, the result of what they both used their gift for became very clear. Mr Ray’s car had already depreciated in value, his friends who came around for the car where nowhere to be found and Mr Ray was already thinking of buying a new car since the old one did not suit him anymore, but Mr Blue’s case was different, his investment of $1,000 five years ago has appreciated to $6,000 which he spent wisely again.

Mr blue was able to make his money work for him and that is the essence of having an asset which the financially wise are always particular about, remember that Mr blue did not have to quit his job because he had an investment somewhere, he kept on with his normal daily job and had his investment generate even more income for me, that is a wise decision in my opinion.

Disclaimer.

This post is not to discourage you from living the life of your dream, if you work for your money then you definitely have the right to enjoy what you worked for, you can buy yourself a good house a great car but it is only financially wise that every luxurious act is lived on the assets that are generating returns.