Most people don’t understand that when it comes to being rich, it’s not about how much money you make, it’s about how much money you keep.
Most people struggle financially because they don’t know the difference between an asset and a liability.
Partly this is because schools don’t teach people what an asset and liability is and partly this is because those who do learn the concepts, learn them from Accountants who make them much too complicated.
Assets-
The simple definition of an asset is something that puts money in your pocket. Many so-called experts on money and Accountants will have a much different definition that involves complex mathematics, but the reality is that unless something is putting money in your pocket it’s not an asset.
There are many things that can be considered assets this includes investments like real estate, business, products like books or art or the dividends from stock and Bond investment.
Rich people focus on building their assets.
Liabilities-
The simple definition of a liability is something that takes money out of your pocket. Common liabilities include car loans, housing loans, unused subscriptions, and more.
There are some good liabilities and some bad liabilities. Taking a loan for depreciating assets such as cars or bikes is a bad liability. Taking a loan for appreciating assets such as house, land, business is a good liability.
If you look at the budget of a financially poor person, you will see that it is full of liabilities and has no assets.