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Investing 101 : Liabilities VS Assets

Discovering the difference between assets and liabilities can have a game-changing effect on your finances. It’s not just about keeping tabs on your spending; it’s like nurturing your very own “money tree” that works tirelessly to grow your wealth 24/7.

It may seem like a simple concept, but it’s surprising how many people are unaware of the crucial distinction between assets and liabilities. When I embarked on my financial journey, I came to the realisation that I had been spending most, if not all, of my money on liabilities instead of building assets.

You often hear the saying “money doesn’t grow on trees,” but in a way, assets can be seen as money trees. They work tirelessly, 24/7, to grow fruits in the form of interest, dividends, and capital gains for you to enjoy.

So, why are the rich wealthy? It’s actually quite simple. They have numerous money trees (assets) that allow them to spend freely without depleting the tree’s original capital. On the other hand, some famous individuals, even MBA celebrities, lack the understanding of the relationship between liabilities and assets. As a result, their extravagant spending eventually leads to financial ruin.

Assets – Growing Your Wealth:

Assets are things that have the potential to make you money. Here are some examples:

📈Stocks and Shares: Investing in stocks means you own a part of a company. When the company does well, you can make money in two ways: capital gains (the value of your investment goes up) and dividends (you receive a portion of the company’s profits).

🏠Property: Owning property can be a great investment. You can make money from it in two ways: rental income (if you rent it out to someone) and capital gains (when its value increases over time).

Starting Small and Be Creative:

If stocks and property seem overwhelming, don’t worry! There are other ways to start building assets:

📚Skillshare/Udemy Classes: Do you have a skill or knowledge that others would find valuable? Create online classes and earn money from people who want to learn from you. It could be anything from cooking to coding!

🎥 YouTube/TikTok Channel: Share your passions or interests on video platforms. As you gain followers, you can earn money through ads, views and sponsorships.

💼Weekend Side Hustles: Find opportunities to make money on the side, like selling handmade crafts or offering services in your community. It’s a great way to earn extra income.

Liabilities – Expenses that Take Your Money:

Liabilities are things that cost you money without giving any financial return. Let’s take a look at some common examples:

🏠Rent: When you pay rent, the money goes to your landlord, and you don’t get it back. It’s an essential expense, but it doesn’t help you build wealth.

🍎Food and Essentials: Buying groceries and other essential items is necessary, but the money you spend on them is gone once you’ve used them up.

👗👜Clothes, Bags, and Takeaway: While they may bring you joy, spending money on clothes, bags, and takeout food doesn’t provide any financial return(maybe not Birkins, but very rare commodities provide higher return than original purchase!). It’s important to enjoy these things, but be mindful of how much you spend on them.

🚗Car: Owning a car can be convenient, but it comes with costs like fuel, insurance, and maintenance. The money you spend on your car doesn’t come back to you.

✈️ Entertainment and Travel: Going out for drinks, partying, or taking vacations are fun, but they’re expenses that don’t generate any income. You spend the money, and it’s gone.

“The Golden Rule for your 20s is to focus on creating assets that will generate money for you to enjoy in the future. It’s like building a strong financial foundation that sets you up for success. And just like going on a diet, it’s not a quick fix but a long-term commitment to optimizing your financial health. Remember, mindset is priceless and can truly make money work for you!”

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