Assets Vs Liabilities for Financial Success

Assets and Liabilities: A guide to Financial Success

Introduction:

Assets Vs Liabilities for Financial Success is very important to factor to achieve financial freedom sooner. It is highly necessary to understand the fundamental concepts of assets and liabilities as both are crucial for anyone striving to achieve financial success and stability. In this article, we will discuss the definition, differences and impacts on our financial journey.

ASSETS

 

Assets are resources that you own, which has immense value. Assets have the potential to generate income. Assets are the components that brings money to your pocket.

There are various form of assets such as:

A.Cash–Money in your bank account or physical currency.

B. Real Estate–Properties you own, such as your land or investment properties.

C.Investments –That you have invested in stocks, bond,    mutual funds or any other securities that appreciates your investment.

D.Personal Possession–Valuable items that you possess such as jewellery, art, or any collectables.

Importance of Assets:

1.  Financial Stability: Assets provide a financial cushion and stability. They can be sold or used as collateral to meet financial obstacles during emergencies.

2. Wealth Creation: Accumulating assets over a longer period of time can lead to wealth creation. Investment in appreciating assets like stocks, mutual funds or real estate can significantly increase your net worth.

3. Business Growth: Business growth demands expansion innovation and increased production capacity and asset provides all these factors to grow your business.

4. Risk Management: Investing in appreciating assets is highly risky and a diversified portfolio of assets can help to mitigate financial risks. If one class of asset underperforms, other may compensate.

5. Retirement Planning: Accumulating assets or real estate is essential for long term financial stability during retirement and that can also enable you to early retirement from your job.

6. Economic Indicator: Assets act as an indicator regarding financial health of an entity.

7. Passive Income: Certain assets such as rental properties, dividend paying stocks or trading, can generate passive income, reducing financial burden from active income source.

LIABILITIES

 Liabilities, on the other hand, represent financial obstacles or debts that you owe to others. Liabilities are the financial obligation which empty your pocket.

This includes:

A. Mortgages: Loans taken to purchase real estate.

B. Credit Card Debts: Balances owed on your credit cards.

C. Student Loans: Money borrowed for education.

D. Personal Loans: Money borrowed for personal expenses.

E. Car Loans: Loans taken to finance your vehicle

 Liabilities can create various kind of burdens such as:

A.Liabilities represent financial responsibilities that can strain your budget that leads you to depression and you became farthest from financial freedom.

B.High levels of debts can make you vulnerable to economic downturns or unexpected changes in your financial situation

C.Increasing liabilities column will keep you in the rat race and you will never come out from rat race and you remain poor.

D.Liabilities will take away all your money from your pocket.

  The diagram below depicts a poor and rich mindset regarding assets and liabilities

TAKE A NOTE

Here are some guide to balance your assets and liabilities column.

A.Make Monthly budget- Make an Excel sheet. Make notes on your income, saving and expenditure.

B.Reduce debts or make zero to the bad loans that you have taken.

C.Plan your debts, repay them as soon as possible, make a note on the amount of interest you are paying your debts, avoid bad loans.

D.Follow the principle of 50/30/20 budget plan.

100  percent – your income

50 percent on your need

30 percent on your long term investment

20 percent on your saving side (emergency fund)

E.Increase your asset columns and try reducing your liabilities column.

F.Continuously asses your risk appetite.

G.Diversify your asset column.

H.Prioritise your asset column.

I.Read financial books and motivational success stories.

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By MoneyMotivationSuccess

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