Assets Vs. Liabilities

I think there is a HUGE misconception in today's society regarding the difference between an asset, and a liability. I've recently noticed this especially amongst some of my peers. When I did an informal poll today, via MSN messenger, my results showed a great lack of financial understanding. Half of the those asked " what is the difference between an asset and a liability?" had a mixed response of confusion, and clueless shots in the dark. Another said their number one asset was their '94 Ford Escort. The most accurate response I received was from a young college student who said his number one asset was the education he was receiving in media/web design. And i will explain why that answer was a little hit-and-miss.

The best definition I could find for asset was found here, It defines an asset as: A resource having economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.
I am going to expand on this briefly, a true asset creates passive income (we will get to that shortly). An asset is a form of property, whether its a business, rental property or intellectual property ( ex. book, music catalog) of value that is creating enough income to take care of any expenses it endures. Once that property can no longer sustain enough income to cover expenses, it is considered to be a liability. Or an opportunity if you are optimistic like me!

Now a liability on the other hand, is not such a great investment if you plan on achieving the lifestyle of your dreams and creating wealth. I have counted my liabilities, and luckily they all fit on my one hand. They include my cell phone, apartment rent and Internet. Basically, a liability is either a contract or lifestyle choice you are bonded to that puts no money back in your pocket. Liabilities often lose value as where assets when properly cared for gain value. So I'm sorry to say it, but that brand new Cadillac you rolled off the lot last weekend is not an asset.

Back to my student friend that said his education was a great asset. I am not arguing with him, I believe your mind is in fact your greatest asset, second to that is your time. But if you are studying in order to find a good paying job, you will be trading your time for money instead of having your time and money working for you.

I would like to know.. do you own a business? do you have any assets? has this post made you reconsider your spending and a possible asset purchasing plan? I want to hear from you! Comment today!