Do you know the difference between real Assets and Liabilities?
What comes to your mind when you think of assets? Is it your car, bike, jewels, or a big house? Let’s demystify it.
ASSET - First things first anything that appreciates over time and adds value to your life is an asset. For example, if you own a stock(equity or a piece of business) of any good company it will appreciate over a period of time and it will definitely increase your wealth. So Stocks of good companies are assets. I am highlighting good because the market is filled with good quality stocks as well as stocks that can depreciate your wealth so we need to be wise while choosing a stock. I can write a separate post on how to pick stocks later. Let’s focus on the topic now. I will list down a few things which I consider to be assets
#Stocks - Owning a piece of good business can massively increase your wealth
#Mutual Funds - These are similar to stocks but you have a manager who manages your wealth if you put your money into some good active funds or even a passive fund like an index fund.
#Real Estate - A piece of land in a good area is an asset.
#Collectables - Antique Items like Art, old coins, stamps, the first copy of famous books, celebrity-used items, etc can appreciate in value over a long period of time.
#Insurance - Insurance is an asset because it can help in protecting your corpus from eroding during tough times of your life and everyone must have health insurance and term insurance.
#Niche Skills - Skills like cloud computing, Data Science, Machine learning are niche skills of the IT industry, and many other skills in the respective domains can help you retire early.
LIABILITIES - Anything that you owe to someone else is a liability. Coming to liabilities… Let’s take the example of your house and decide whether it is an asset or a liability. If your house is generating a rental income and its value will increase over a period of time then we can classify your house as an asset. If you buy a house on a home loan and if you are paying EMI for it then it is a liability. I have listed down a few liabilities below.
#Home Loan - Your house cannot be considered as an asset unless it is generating an income for you
#Car Loan - Buying a car on a vehicle loan is definitely a liability and I would personally advise you not to own a car and rent it. Owning a car is so convenient but remember that the value of your car starts to depreciate at the moment you keep your hands on it.
#Credit card - Credit card is a two-edged sword. I would classify it as a liability since you need to pay your credit card bill on time else you will suffer if you don’t have financial discipline
#Taxes Owed - Taxes also comes under liabilities and pay your taxes on time to prevent penalty charges