May Tips: Understand an Asset and a Liability

Understanding the difference between an asset and a liability is a crucial step in learning how cash flow works and a fundamental shift in how you may be thinking about money. Most people make the mistake to believe that anything they own is an asset – whereas this really is not the case! Things that you own that require constant maintenance to maintain value, or even have depreciable value, are not an asset. Your home is not an asset! It’s a big liability in fact. Assets are things that generate cash flow for you – such as a small business that brings in a consistent $1,000 a month without you having to invest time in it. Royalties are an asset. When you can recognize the difference between an asset as cash flow and not as an item of property, you’ll be on your way to better understanding how to make money work for you.