Assets and Liabilities

Do you consider yourself rich, middle class, poor or in debt?

If you stop working today for whatever reason, how long can you and your family survive? Do you have assets or what you have are mostly liabilities?

Most people think that someone is rich or well-off when they have “assets” like a beautiful house, nice cars, latest gadgets , luxurious bags and shoes. We all want those. Having those would mean you are not poor, right?

If someone will ask you to write down your assets and liabilities, what will write in each column? Is the nice car you are driving an asset? How about your home?

Before we can answer that, let’s define Asset and Liability. Borrowing the definiton of Rich Dad, Poor Dad author Robert Kiyosaki, he defines an asset as anything that puts money  in your pocket and Liability is anything that takes money out of your pocket.

Now let’s go back to that someone with a big house, a new car and a latest gadgets, is that person really rich? Are your so called assets actually putting money in your pocket or is it eating you alive?

Do you still remember your basic Net worth subject ? I still do, and I remember that it’s acceptable for us to indicate real properties and improvement at fair market value and personaly property and acquisition cost. But remember this, the car that you have is  loaned from the bank and you still have to pay for it ( well for most of us) and the moment you drive it  off the lot, it loses value and will continue  to lose value as time goes on.

But what if you paid for it in cash? Then you may consider it an assest but a depreciating one. But using that car will mean you will spend on gas, parking, insurance and maintenance. Considering all those and going back to how Robert Kiuyosaki defined assets and liabilities, you already now that car is a liability.

A home is only an asset if you are earning from it , say you put it up for rental or AirBNB. But if you are living in that house and is paying for the house loan and maintaining it, that house  is draining your money. A home is an emotional thing for most Filipinos and that is something that a young family will first buy and consider that their biggest investments.

Sadly the majority of us acquire many liabilities in our lifetime and we think they are assets. We feel okay and others will see us as “ well-off” until something happens. Do you remember those Pinoy movies where the familly is rich and the father is say a businessman or a Dr or whatever and then he dies or gets sick and die. What they do after?

When the breadwinner gets sick or dies, the family will sell their properties and will dispose and will be considered poor in a year or two. They will no longer have their helpers, the have sold the car and will move to an apartment and the children will sometimes transfer to a cheaper school or will start working instead of studying. Sounds familiar?  How can someone so  “rich” becomes suddenly poor

The answer is because they are not finally literate. They considered liabilities as assests and prioritized acquiring more liabilities. So what should one do then?

First , understand how assets and liabilities work. Increase your income as you decrease your expenses so you can save money. But is saving money enough? The answer is a big NO. You save money so you can invest, so your money will earn and will work for you.