Assets and Liabilities

     One of the most important topics in financial education is that of assets and liabilities. Knowing the difference between the two is at the core of wealth creation. Having an asset-centered frame of mind is the key to achieving financial abundance. Unfortunately, the poor and middle class focus on liabilities and their wealth steadily erodes as a consequence. The underlying principles between assets and liabilities are presented below. You can decide which path is the right fit for you.

ASSETS
     In simple terms, assets put money in your pocket. When money is used to purchase an asset, the asset generates more money and cash flows in. Think of money growing on a tree. The rich get richer because their focus is centered on accumulating more assets.

LIABILITIES
     Liabilities take money out of your pocket as cash flows out. The poor and middle class stay broke because of too many liabilities (and too few assets). Some examples are cars, designer clothes, and eating out. Liabilities are a barrier to financial well-being and escaping the rat race.

     To improve your financial situation, focus on which way cash flows. You want the cash to flow in towards you! In fact, the goal is to have as much cash flowing in as possible.

     For now, grasp the understanding that wealth is built through assets and destroyed by liabilities. Having cash flowing in, while minimizing the amount going out, is critical to financial success.