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Episode 10: Asset vs Liability. Know the differences!

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In a layman term, an asset can be defined as something that puts money into your pocket or bank account. It can be a piece of machinery that you lease out and get some payment on a regular basis, property that you rent out and collect monthly rent, ownership stake in a company through acquisition of shares that pays quarterly dividends, royalty that you get from your work (for example, music, movie, or book deal). Examples include land, building, equipment, and machinery. You make money on your asset. In another term, an asset is something that you own.

 

Liability, on the other hand, can be defined as something that takes money from your pocket. Liabilities cost you money. For example, if you buy a car on loan and paying monthly interest on the loan, then your vehicle should be considered a liability because it takes money away from your pocket. If you like accumulating material things, clothes, shoes, pieces of jewelry, and so on, you are putting your money into liabilities because you do not earn anything from these items. Liabilities also include credit card debts, mortgage loan, and every other thing that cost you monthly payment to keep. In another term, liability is something that you owe.

 

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