Getting a grip on your financial situation often requires a lot of reading, and many new terms. For some reason people have a difficult time differentiating between assets and liabilities. This is by no means a definitive post on the subject but I wanted to outline my favorite understanding of the topic.
It either eats you, or feeds you
Robert Kiyosaki makes a very interesting point in his book cash flow quadrant. In this book he outlines income, liabilities, and assets. He shows how they all flow together for most common people, income through to liabilities. He outlines how your liabilities such as credit debt, car note, or even mortgage are liabilities to you, but they are an asset to the bank or lender. It’s an interesting book, but you can’t take it at face value. The point of bringing up the book “Rich Dad, Poor Dad” or as I bought my wife “Rico padre, Pobre Padre”, is to highlight his sentiments on liabilities versus assets.
“In rough times, a liability will eat you whereas an asset will feed you”
Differing Opinions
There are many different opinions on what is considered an asset and what is considered a liability. As stated above, and in many of his books Kiyosaki often claims a home is not an asset. However, many financial advisors and guru’s in the financial world consider a home an asset. In fact, not only do they consider the home an asset they often consider it a persons greatest asset. You’ll have to conclude for yourself whether or not your home is a liability or not. Right now I’m sure there are many in places like California, Arizona and Florida who have lost a considerable amount of equity in their homes. But does this make the home a liability, or just the mortgage a liability?
Feedback
What do you consider a liability or an asset that others may not feel the same way?
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[...] Twenties Money Magazine asks a popular question: What is the difference between Assets and Liabilities. [...]