There is a lot of difference between assets & liabilities, however, many fail to differentiate between the two and end up buying a liability thinking as an asset.
Any valuable could be an asset if it starts creating wealth for you by generating capital appreciation or dividend or interest income. There would be cash inflow which eventually helps to increase your net worth. The asset provides future economic benefits and generates revenue for you.
On the other hand, liability is recurring expenses or cash outflow or loan EMI which reduce your net worth. Taking a loan r investing in a depreciating asset is also a liability. Liability is a future obligation.
Assets include the value of securities, mutual funds, FD, saving accounts, retirement funds, PPF, EPF, holding in Demat account, and real estate. Liabilities include any debts the individual may have including personal loans, credit cards, student loans, unpaid taxes, and mortgages. House may be an asset but if it on a mortgage, then surely it is a liability.
One should focus on acquiring the assets and not liabilities. There is also a difference between good liabilities and bad liabilities. If a house taken on a loan gets appreciated over time is an example of good liability whereas a car on loan is an example of bad liabilities. That means if you leverage your capital and start earning revenue then it falls under good liability. However, the life of a person who owns any kind of liabilities must be insured to protect against any causality like death or accident.
Avoid lifestyle & fancy products if they are depreciating in nature.
No comments:
Post a Comment