What are Assets?

According to the dictionary, an asset is a thing of material value or usefulness that a person or company owns. When it comes to personal finance, the definition of an asset is somewhat different. In personal finance, an asset puts money in your pocket. If it doesn’t put money in your pocket, it’s not an asset.

Many people consider things that they own, like a car or a condo to be an asset. Yet, a car or a condo do not put money in your pocket unless you sell or lease them. Until you do, and that car or condo put actual money in your pocket, they are not assets.

According to the Rich Dad books, the reason most people get into financial trouble, the kind of trouble that is sweeping across the nation at this time, is that they do not understand the difference between what is an asset and what is not an asset.

According to the Rich Dad series of books, a car or condo are not assets because if you were to lose your source of income, which for most of us is our job, then that car or condo would become a serious liability for us. It would cost us money out of our pocket to pay the loan amount for the condo or the car. Additionally, the maintenance and upkeep for the car or condo, things like gasoline to run the car, or property taxes and insurance for the condo, become liabilities that draw our income away, and leave us with negative cash flow. In other words, money coming out of our pocket instead of going into our pocket.

Because most people do not fully understand the difference between assets and liabilities, they stumble and fall financially. It is vitally important to know the difference between an asset and a liability. To sum up, an asset puts money in your pocket. A liability takes money out of your pocket. Your goal should be to create or buy assets, and minimize liabilities in order to stay ahead financially.