Why am I doing this?
Most of us are probably active on this subreddit, because they want to increase their financial education in some way or the other.
So do I! I want to improve my financial education by learning at least one new financial term every week.
For me the best way to learn about a new topic is through these steps: researching, explaining and discussing.
I'll explain a financial term and give some of my own thoughts about it. You may have a different opinion on the definition I chose or think about that topic in another way.
And that's where I hope, the discussion kicks in.
But now.. Let's start with this weeks financial terms: Assets and Liabilities
What is an asset?
Investopedia defines assets as ‘resources with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit.’ In other words: An asset can be anything that generates a positive cashflow by reducing expenses or improving sales.
What is a liability?
Liabilities are obligations (often between two parties) that arise during the course of business. In general these obligations are not yet completed or paid for.
Examples
Some examples for assets:
- manufacturing equipment
- patents, trademarks, copyrights
- stocks, bonds
Some examples for liabilities:
- loans
- mortgages
- accounts payable
- unearned revenue
What do you think…
Houses and cars are often mentioned as examples for assets.. and of course they can be if you e.g. rent them out.. But when looking at your personal financial statement / balance sheet they often become liabilities instead of assets.
I really like the way Robert T. Kiyosaki explains assets and liabilities. In his words assets are things that put money into your pocket while liabilities pull money out of your pocket. When you e.g. look at real estate, it can be either an asset or a liability depending on whether it brings or loses money for you.
What do you think about this way of defining assets and liabilities? Is there anything crucial missing with Kiyosakis definition or do you think it covers all important aspects of these terms (in a really simple way)?
Feel free to ask questions, comment on my thoughts and give your honest feedback. If you are interested in learning and discussing more financial terms together, let me know. Finally.. thank you for taking your time, reading this and sharing your thoughts with us!
Links:
Financial term of last week: Profit
Next financial term: to be done
Submitted March 21, 2019 at 10:04AM by AMillionPI https://ift.tt/2TZML6E
