Is furniture a liability or an asset?

Why You Need to Know the Difference Between Liabilities and Assets

Have you ever wondered what kind of assets you own? Ok, let's count it up: car, shoes, branded handbags, home, furniture, ... STOP!

All of these things are liabilities and NOT assets. You invest in debt and wonder why you are not getting wealthy. Robert Kiyosaki wrote the following in his book "Rich Dad, Poor Dad *":

“Rich people acquire assets. The poor and middle class create liabilities, but they think they are assets. "

But how do you become wealthy and what do I need to know?

What is a cash flow?

Cash flow means cash flow and is the difference between income and expenditure within a period of time. If your cash flow is positive, it is positive. If it's negative, then it's negative. Your goal should always be positive cash flow.

Example: You rent a property and have expenses of € 800 in the month of June. Your rental income for June amounts to € 1,000. Your cash flow is positive and is € 200.

Note: The cash flow is not the same as profit. When determining profits, expenses for which no money “flows”, such as the depreciation of fixed assets, are also taken into account.

What are liabilities?

Liabilities regularly cost you money. They pull the money out of your pocket. Liabilities include debts, owner-occupied property, a car, furniture and consumer goods. They cost money to buy and maintain.

And when you sell them you get a lot less than what you paid for. Take the car as an example. You decide to buy a new car. You leave the dealer's place full of joy about the new car.

While you are enjoying the first few minutes in your new car, your car has already lost several hundred euros in value. That's not all, because now you also have ongoing expenses. Every year you have to drive to the sticker and to the service.

After the first few years you need new tires and the first repairs are due. Oh yes, and you also have to refuel. At the same time, your car is losing more and more of its value. Your car is therefore a liability, because it constantly costs you money instead of bringing you money.

So your assumption that you own an asset is wrong. It is the same with the single-family house in which you live with your family. Your home is also a liability. Your house costs money every month.

And think about the credit, the repairs, e.g. when new windows are due or the roof needs to be replaced. All of this must also be taken into account. But your house does not bring you regular income. So it pulls the money out of your pocket.

What are assets?

Unlike liabilities that pull the money out of your pocket, assets fill your pockets with money. An asset is a source of money. Let's take a rented apartment as an example. Here you receive rental income every month. That means the apartment brings money into your account every month.

Assets include, for example, rented real estate, stocks, bonds, ETFs, intellectual property (books, pictures, music, patents), companies or even corporate investments.

They all bring you income in the form of dividends, interest, rental income or license fees. Wealth is everything you own and generate current income.

Why aren't more people wealthy?

The difference between liabilities and assets should now be clear to you. But why aren't more people wealthy when it is so easy?

While the difference between liabilities and assets is easy to understand, many consider their home or car an asset.

And this is exactly where the mindset of the middle class differs from that of the wealthy. Wealthy people know the difference between assets and liabilities and know that the car and home is a liability.

Wealthy people often live forever in cheap rental apartments. With the money saved, they buy new assets again. Only when their positive cash flow is high enough do they buy their own home or a new car.

They only buy liabilities when they can afford them. It also means that when they acquire liabilities, they do not run into debt. The middle class does it the other way around. First, investments are made in the liability (own home).

Here you pay 30 years for the loan, interest, repairs and maintenance. They have nothing that brings them current income as they put all their money into paying back the house.

Unlike the rich, whose pockets are filled with money every month, the middle class home pulls the money out of their pockets every month. So you have to keep walking in the hamster wheel.

Wealthy people think long term and resist temptation quickly. They spend their money very conscientiously and keep investing in assets.

As a result, they are constantly creating new, additional sources of income and their positive cash flow is getting higher and higher. Many people who stubbornly and diligently invest in assets and who persevere for many years can thus achieve financial freedom.

How about you Are you buying liabilities or assets?