Assets over Liabilities: What you should know.

Published by

2 days ago

Dear Readers,

Let’s chat about something that I believe is foundational to true financial peace and progress: the idea of assets over liabilities. It’s not just a fancy accounting or financial term; it’s a mindset, a strategy, and frankly, a game-changer for anyone looking to build a secure financial future.

Think of it this way: your financial life is a seesaw. On one side, you have things that bring money into your pocket or grow in value (assets). On the other hand, you have things that take money out of your pocket (liabilities). The goal should be to get that asset side weighing a whole lot more than the liability side.

Now, let’s break down what these really mean, not in some stuffy textbook way, but in a way that applies directly to our lives.

What exactly are assets?

When I talk about assets, I’m talking about anything you own that has value or the potential to generate income. This isn’t just about big investments, though those are definitely part of it. Assets can be:

Cash in your bank account: Simple, but effective. Having a healthy emergency fund is a prime example of a liquid asset.

Investments: Stocks, bonds, mutual funds, and ETFs—these are all designed to grow your wealth over time.

Real Estate: Your home, if it’s appreciating in value, or rental properties that generate income.

Retirement accounts: RSA or other pension plans are essentially deferred assets that will support you later in life.

Businesses: If you own a business that generates profit, that’s a significant asset.

Intellectual Property: Royalties from a book, patents, or even valuable skills that you can monetize are all forms of assets.

The beauty of assets is that they work for you. They can grow through appreciation, generate passive income, or provide a financial cushion.

On the flip side, liabilities are essentially debts or financial obligations that you owe to others. They drain your resources and can hold you back if not managed carefully. Common liabilities include:

Mortgages: While your home can be an asset, the mortgage itself is a liability until it’s paid off.

Credit Card Debt: High-interest credit card debt is a notorious wealth destroyer. It’s like pouring money down a very expensive drain.

Car Loans: Similar to mortgages, the loan on your car is a liability, even if the car itself is a depreciating asset.

Personal Loans: Any money you’ve borrowed from banks, loan apps or individuals falls into this category.

Liabilities, especially high-interest ones, can feel like you’re constantly running on a treadmill, never quite getting ahead. They eat into your income and prevent you from putting more money towards building your asset base.

So here’s why prioritizing assets over liabilities is so crucial:

Wealth Building: It’s simple math. The more assets you accumulate and the fewer liabilities you carry, the more your net worth grows. Net worth, which is essentially assets minus liabilities, is the true measure of your financial health, not just your income.

Financial Security: A strong asset base provides a safety net. If you lose your job or face an unexpected expense, your assets can help you weather the storm without resorting to more debt.

Peace of Mind: There’s a profound sense of calm that comes with knowing your money is working for you, rather than you constantly working for your debts. It reduces stress and opens up possibilities.

Financial Freedom: Ultimately, this is about freedom. Freedom from debt, freedom to make choices, and freedom to live the life you envision without financial constraints dictating your every move.

In my experience, I always tell clients to start with an “honest assessment” of where they stand. List out everything you own that has value and everything you owe. Then, focus on two key strategies:

Aggressively reduce liabilities and systematically build assets. It’s not always easy, and it takes discipline. But trust me, the effort you put into shifting that financial see-saw in favor of your assets will pay dividends for years to come.