Assets vs Liabilities

66

By Kidgas

What is an Asset?

According to InvestorWords.com, and asset is defined as “any item of economic value…especially that which could be converted to cash.”  This essentially means that my house, vehicles, furniture, electronics, clothing, as well as stocks, bonds, cash value life insurance, gold, silver, investment real estate, etc are considered assets as long as I could sell them (EBay comes to mind) or somehow convert them into cash.  But Robert Kiyosaki defines an asset as anything that puts money into your pocket.

What is a Liability?

Conversely, he defines a liability as anything that takes money out of your pocket as opposed to the InvestorWords.com definition of “an obligation that legally binds [one] to settle a debt.

What does it matter?

I much prefer Robert Kiyosaki’s definition because the essence of creating long term wealth is bringing in more cash than you spend.  We have all seen businesses go bankrupt despite having plenty of traditional assets because they didn’t have the cash flow to support those assets or their other business activities.  I also like this definition because the concept of financial freedom requires that your assets (or wealth) dispense enough cash to support your everyday expenses giving you the “freedom” to spend your time as you wish.

Comments

Triple Net Lease 2 years ago

Thanks for the informative article, it's hard to find good economic advice, but yours is very simple and easy to understand. Thanks again!

ผ้าปูที่นอน 13 months ago

Yes, I agree to Robert's Asset and Liability. His definition is simple and clear. I follow his Cashflow Quadrant. Now, I'm a business owner.

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