20240304 I don't know what assets and liabilities are, how do I make money?
A basic understanding of assets and liabilities is crucial when exploring the path of how to make money. If we don't even know the basic concepts of assets and liabilities, we can get lost in our financial decisions and investments, and we may even get stuck in the quagmire of liabilities and not be able to accumulate real wealth.
What are Assets and Liabilities?
Assets and liabilities themselves are a pair of financial concepts, and accounting reflects the operating conditions of a company or unit in a certain period of time (usually one year) by preparing a balance sheet. Each of us can treat ourselves or our families as a company, and take a careful inventory of our own operations to see whether we have lost money or made money.
Assets are resources or items that can bring us economic benefits, such as cash, properties that can be operated and rented,**, etc. They can generate income, add value or maintain purchasing power for us. In a word, anything that can generate cash flow income for us can be called an asset.
Liabilities are debts that we need to pay off with assets or income, such as mortgages, lines of credit, credit card debts, etc. Debt eats into our cash flow and increases our financial pressure. Current consumption and future consumption can only be included in liabilities.
Many people regard their houses and cars as their assets, but in fact, most families' self-occupied homes and cars do not bring in cash inflows, and they are large consumer goods. This question I wrote in my book Is Real Estate an Asset? has been discussed in detail in the article. Mortgages and installments can also eat into your future income, creating an actual long-term debt.
Understand the distinction and connection between assets and liabilities.
Assets can create wealth for us, while liabilities can become a financial burden for us. In the process of running our "one-man company", we should strive to increase our assets and reduce our liabilities.
A moderate amount of debt can provide us with funds to expand our investments and purchase assets, but the key is to control the size and interest rate of our liabilities to ensure that they do not become a burden and do not create a "cash flow trap". If we can't maintain our cash flow, we will only end up in "bankruptcy".
Spending debt on consumption is digging a big hole in our cash flow, and it takes a lot of income to fill it. In the early stages of the company, it is necessary to use liabilities carefully. Strive to increase revenue and reduce expenditure, and invest the surplus funds into assets as much as possible to bring more cash flow to yourself.
Our ability to divide assets and liabilities directly determines our ability to manage our funds. Without a scientific distinction between assets and liabilities, it is impossible to make effective use of funds.
Learn to use assets and liabilities to make money.
By investing in assets, we can grow our wealth. For example, investment** can share the dividends of business growth, and investing in real estate can obtain rental income or asset appreciation. Liabilities can be used as a financial lever to help us scale up our investments, but only if we have sufficient cash flow and repayment ability.
The ability to invest directly determines our ability to acquire wealth. An investment is an asset that will continue to generate cash flow in the future. Davis Sr. admonished his grandson: $1 now, after decades of investment, can become $10,000, are you willing to use the next $10,000 to buy an ice cream or a toy?
Learning the necessary financial knowledgeFinancial knowledge requires continuous learning. Our schooling rarely provides financial knowledge, only finance majors or economic management majors will provide it. In fact, each of us must be our own accountant.
Isn't it ridiculous that in the book "Rich Dad Poor Dad" says that we have such a small foundation and try to build the Empire State Building? We need to have the necessary financial knowledge and a solid cognitive foundation to achieve financial freedom.
Have the courage to practice and explore.
After learning the necessary financial and business knowledge, we also need to experience and practice. Without real exercise and practice, it is impossible to use it freely. ** Say: Learn war in war. If there is no practice of war, and only talking about the art of war and strategy, it is inevitable that Zhao Kuo will end up talking about the fate of soldiers on paper.
Shopping malls are like battlefields, and it is impossible to succeed without experiencing the smoke of war and honing in detail. On paper, it is shallow in the end, and you must know that you have to do it.
To understand market dynamics and adjust investment strategies, it is also necessary to constantly sum up experience and reflect on mistakes in practice, so as to improve one's financial literacy and earning ability.
There is nothing wrong with having the courage to take the first step, but how to take the next step is the key. When we were studying, our teachers always encouraged us to make bold assumptions and be careful to verify. In conclusion, to make money, we first need to understand what assets and liabilities are and how to use them to create wealth for us. Only in this way can we move forward more steadily and effectively on the road to making money.
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