Assets vs liabilities

Training 25 minutesassets vs liabilities

You are 31, a self-employed electrician. A great year left you with a $6,000 bonus. Every purchase now will either feed you or ask to be fed.

Training goal: Buy things that bring money in

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Situation

1. Your van is old but runs and has not cost you a single job this year. A dealer offers a new pickup: $2,000 down and $450 a month.

Get the pickup, clients will be impressed
Keep the van, set aside $300 for repairs
Lease the pickup with nothing down

2. A solar panel installation kit costs $2,500. Three clients are already asking about panels: about $350 more a month.

Skip it, there is plenty of work already
Buy the kit and take the training
Buy the premium kit for $5,000

3. A friend sells a share in a boat for $1,500. Upkeep and mooring: $120 a month each.

Buy it, a boat is worth money so it is an asset
Pass, rent a boat now and then
Buy it and rent it out to tourists

4. About $3,000 is left, and a 4-month cushion already sits apart. Your bank offers an index fund, and a store invites you for a new TV.

$2,000 into the fund, $1,000 to your cushion
A $1,800 TV and a trip
Leave it all on the card, decide later

What you will learn

An asset brings money in, a liability takes it out every month
A price tag does not make an asset, cash flow does
Judge an asset by its payback time

Your real-life step

List your 5 biggest things and subscriptions. Mark each with a plus or a minus for its monthly cash flow.

Questions and answers

What is the difference between assets and liabilities?

In accounting, assets are what you own and liabilities are what you owe. In personal finance a simpler test works: assets bring money in, liabilities take it out.

Is a house an asset or a liability?

Your own home is useful but costs money every month. A rental with income above its costs works as an asset.

Is a car an asset?

Usually not: it loses value and needs fuel, insurance and repairs. The exception is a vehicle that earns more than it costs.

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Numbers are illustrative. A game, not financial advice.