Assets and Liabilities

First off, I'd just like to announce that we have our first ever snow clearing customer. I'm very excited. It's not much, but it's a start. I'm hoping we can add a couple more before winter really gets going. I've put a lot of work into this business and have been pretty much eating and sleeping it since the start of September trying to get it going in time, so it's nice to start to see some payout.

Now that's out of the way...The next lesson that I would like to pass on that I have learned is one that is very basic, yet so very, very important. It is something that many people are confused about, and once you have learned it, it will make a world of difference to you.

Assets and Liabilities...what are they? Well, we all learn when we go to get a bank loan that assets are things like houses, cars, and mutual funds, and liabilities are things like debt. Unfortunately, that is not exactly the truth. If you look up the word asset in the dictionary, you will get a definition that supports the standard definition of the word "asset": an item of value owned. Likewise the word liability: something for which one is liable.

To all of us middle class and poor people, these definitions of the words "asset" and "liability" are sufficient. It is all we really need to know. To get a loan, you need an "asset" to back it up, like a house or cash. If you have too much "liability", you won't get a loan. That's about as much experience as most of us will ever have with the words.

To rich people, however, these words have a much more useful meaning. It is very simple, but has a profound significance. An asset is anything that I own that puts money in my pocket. A liability is anything that takes money out of my pockets. Why does this difference matter? Because what most people assume to be their biggest asset, their house, is actually their biggest liability. I don't know about any of you, but my house does not make me any money at all. In fact, it costs me money. A lot of money. It is a liability, not an asset. An example of an asset that I own is my yard care business. It puts money in my pocket (or will soon, anyway).

The reason this is so important is this: rich people buy assets. Poor and middle class people buy liabilities. That one teeny little difference makes all the difference in the world. If I am rich and I have $1000, I will buy a stock, or put it towards some real estate, or something else like that. If I am poor or middle class and I have $1000, I will buy a new TV, or go on a weekend getaway, or something like that. After awhile of buying assets, the rich person will be making money and will then have enough to buy a new TV and go on a weekend getaway, and will still have the original $1000. After awhile of buying liabilities, us poor and middle class people will have a house full of junk and a maxed out credit card.

Since learning this, I have personally committed to never buy a single thing for myself again that I don't absolutely need unless the money has come from the proceeds of an asset. I have not asked my wife and children to commit to this yet, but when I have reached that goal for myself, they will be following suit. Instead, I am taking that money and buying assets. For example, I just acquired a DNS registry website that can make me $300-$500 per month. That is an asset. I plan to acquire many more.

There are different types of assets, among them: real estate, businesses, portfolio (paper assets like stocks and bonds) and intellectual property. Look around and I guarantee you will find something that you can afford. As I mentioned in a previous post, there are plenty of opportunities out there.

I can't stress enough, stop buying liabilities! We are all doing it, and if we ever want to get ahead, we need to take that money and buy assets instead. Think of the last big ticket item you bought. I'm thinking of what I bought, and it cost $400. I had no problem spending that $400, but when thinking of investing, there was no money. Imagine if, evertime you ever bought something like a TV, car, boat, bike, etc, you had purchased an asset instead. Think how much money you've spent in the last year, and now imagine what you could have done with that money had you invested it in something. Imagine all the junk you could buy if you had $50,000 generating you $5000 every year. Double that. Triple that. It's not that hard. I am on my way. I hope to see you all when I get there.

Dad