Thursday, September 24, 2009

Assets and Liabilities

In order to achieve financial freedom, it is important to identify what are assets and liabilities.

What are Assets?
People always have a misinterpretation that assets are things that belong to them. Well that is only half true. The true meaning of assets is things that you own which help you to create money. For example, you have bought a house, and you pay $1000 for instalment every month. Instead of living in the house, you rented it out for $1500 per month. You can call your house as an asset because it brings in $500 to you every month.

What are Liabilities?
Liabilities are exactly opposite to assets. Liabilities are things that you own which take money from you. Using the same example, you have bought a house, and you pay $2000 for instalment every month. Instead of living in the house, you rented it out for $1500 per month. You can call your house as a liability because it takes $500 from you every month.


Learning how to increase your assets and reduces your liabilities is an important step towards finance freedom. By the way, is money itself a liability?



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