ASSETS AND LIABILITY

In my previous post CREATE PASSIVE INCOME I shared to you how you can create passive income by acquiring assets. Now I will be sharing about assets and liability.

What is asset and what is liability?

Asset as defined in Wikipedia – In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).

Asset as defined in Investopedia – A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Liability as defined in Wikipedia – A liability can mean something that is a hindrance or puts an individual or group at a disadvantage or something that someone is responsible for or something that increases the chance of something occurring.

Liability as defined in Investopia – A company’s legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

Personally I am applying the definition of Robert Kiyosaki for asset and liability. Robert Kiyosaki defined asset as something that you own that brings in money into your pocket, while liability is something that you own that takes out money from your pocket.

Assets and liabilities determine whether we can create savings or not. As Robert Kiyosaki says, the rich people acquire assets while the poor people are collecting what they thought as an asset but in reality they are liabilities. No wonder why the rich becomes richer and the poor become poorer. It is because of a matter of how much they acquired assets and liabilities.

By applying the definition of Robert Kiyosaki for asset and liability we now have a way of identifying an asset against liability.

Following the example of Robert Kiyosaki, I took a piece of paper and draw two columns. I named the left column as Asset and the right column as Liability. Then I start identifying everything that I own whether it is an asset or liability. I included my daytime job in my asset column because it is the main source of my income and therefore it is bringing in money into my pocket. During my first try I found out that I got a lot of liability while my assets are few. With this kind of result I will surely find myself having a hard time creating my savings.

Since I really wanted to create savings for my family, I need to lessen the quantity of my liabilities and at the same time increase my assets. The first step that I need to do is to turn my liability into an asset. An example to this is by using the mobile phone to sell e-load. Since the majority of the Filipinos own a mobile phone and majority uses the prepaid load then it is possible to use the mobile phone and sell e-load. That way the mobile phone that use to take out money from the pocket is bringing in money into the pocket thus it becomes an asset.

Another example is the refrigerator. The refrigerator contributes a lot to a high electric bill. What I did is I sell our refrigerator and we bought a freezer. You might wonder why we did that, because a freezer consumes a lot more electricity than the refrigerator. But the secret to that is we can make a lot more ice than the refrigerator. By selling more ice every day we are able to pay for our electric and water bill. So the freezer becomes an asset to us.

You may also have an idea of something that you own that can be turned into an asset, an asset that can create passive income for everyone who wants to create savings and investment. Please feel free to share your idea here for everyone.

Thanks in advance and happy saving and investing to everyone.