No matter what our financial situation is, knowing and recognizing the difference between assets and liabilities plays a crucial part for creating wealth in our journey to financial freedom. Acquiring assets, whether we purchase or create them, is not only about how we invest our money, but also how we invest our time. We don’t…and won’t get wealthy working for someone else! We get wealthy in our free time by generating or acquiring assets. For most of us working for someone else is a foundation which we use to create and build our wealth on, but it’s not where our financial freedom will come from. Aside from purchasing and/or creating assets, knowing what is a financial liability is equally as important. Assets and liabilities are opposing forces in finance and the difference in how we see them will make us or break us!

Two Things You Need to Know

There are two opposing forces in finance called assets and liabilities. The difference between assets and liabilities is simply put in this way…an asset is something which generates an income. Or said differently, it puts money in your pocket. And a liability is something which is an expense or takes money out ofyour pocket. That’s about as simple of an explanation as it gets.

In order for you to build wealth, you need to focus and concentrate on taking advantage of spending your money on things that will put money back in your pocket after you buy them. When you think of spending money, you need to think of things that will produce an income in return. As examples, the most common are stocks/bonds, real estate and business.

“Assets put money in your pocket, whether you work or not, and liabilities take money from your pocket.” – Robert Kiyosaki

If all you do is spend money to buy things which increase your expenses and ultimately take money from your pocket, then that’s when you just end up broke! By spending your money on buying assets you will continuously increase your income. This will then provide you with more cash to invest in more assets, which in turn will boost your income even further.

If you change the way you spend your money by buying assets first, the money generated by your assets can take care of your liabilities. It’s not necessarily as easy as it sounds, but the benefits are worth the effort. Buy assets before you spend on liabilities…it’s worth it!

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