Assets And Liabilities

So when you visit this website, do you think about earning some money? Here's one weird fact: You can start earning some money by spending some money! Here are two words you need to know: assets and liabilities.

To give you simple definitions, an asset is something that goes up in value and puts money in your pockets. Liabilities are the other way around. Liabilities are things that goes down in value and takes money out of your pocket. So, when you want to buy something, buy an asset (yeap, I said buy). When the price goes up, that's when you sell. Get it? So, to make money, buy assets, things that goes up in price, and sell them.

Some examples of assets are:

Houses or Real Estate,
Saving Accounts,
Retirement Plans,
Stocks and Bonds.

All those goes up in price. Let's take up stocks. When you buy a stock, try to buy it when it's at a low price. Then, when the price goes up, you can decide to sell it! There's one example of an asset (Read more about stocks in Lesson 14). On the other hand, there are liabilities such as:

Cars,
Stereo,
Clothing,
Computers.

The prices for those items go down, right? You buy a car for $25, 000. The chances are that the prices are never going to go up. As the years go buy, your car could be worth $2 000 only! Now, another thing you have to keep in mind is a little equation:

Assets - Liabilities = Net Worth

Your net worth is wealth. In other words, assets, and possessions that increase in value or provide a return. You need more assets than you need than liabilities. Makes sense, right?

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