What do you mean by an Asset or for that matter a liability?
There are lot of confusion going around on the actual meaning of asset and liability, when it come to investments by common people.
Banks and financial institutions which wants to sell their products ( Loans) tend to misguide innocent people on these 2 important terms.
Please note that, having a clear understanding of asset and liability, is the key to financial success.
If you ask me, the major reason for the financial struggle by poor and middle class, is their lack of knowledge of these 2 most important terms.
Many create liabilities thinking it as an asset.
So let us be very clear on Assets and liability.
In simple words, Asset is a economic resource which bring money to your pocket. Rich people continuously work to make good assets.
Popular examples of assets are Stocks of companies, Bonds, income generating Real estate, Mutual funds, Businesses, Intellectual property, Royalties etc.
On the other hand ‘ Liabilities are the things which take money out of your pocket’.
Examples for liabilities are loans, Own house, vehicles for own use, Utilities, maintenance etc.
Middle class and poor knowingly or unknowingly make liabilities and suffer in life. Many of them think the house in which they stay and the car used for their own purposes are assets, which are actually liabilities, as these regularly take money out of our pockets for their maintenance , taxes, insurance , utilities etc.
And assets are independent mechanisms , once created , will work continuously for us to make money.
So to make money and to become financially independent, your wealth scale should have maximum assets with minimum liabilities.
All the best!
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