Assets vs. Liabilities

Many people associate wealth with owning lots of expensive items like nice cars, clothes, or the newest phone. This is not necessarily true.

Things we own may look impressive, but they don’t reflect our true financial well-being. A better way to define financial wealth is to answer a simple question: Do your belongings bring in money, or take money out?

• Assets (Money In): An asset is something you own that can be converted to cash or generates income, even when you are not actively working. Assets increase your financial stability by creating additional income streams.
• Liabilities (Money Out): A liability is something you owe, or something you own that takes money out of your pocket to maintain. Liabilities reduce your flexibility by reducing your future income.

Strong financial health comes from using your income to acquire assets. Over time, the income generated by assets can be used to cover liabilities.

Poor financial health is when you use your income to buy liabilities that slowly drain your future income.