Financial Literacy For All – Assets & Liabilities

In Accountancy an asset is defined as ‘‘a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.’’

A liability also defined as “present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits’’.

These are the classroom definitions and technical for those in the Accountancy field and these definitions are mostly related to assets owned and liabilities owed by corporate entities.

Assets and LiabilitiesHuman beings, as we are, we also have personal assets and liabilities and we can define them in our personal ways that would give us better understanding. This would help us take proper personal financial decisions.

Now let’s look the definitions given by one renown American Entrepreneur, Writer and Teacher, Robert Kiyosaki. Roberts defines an asset ‘‘as anything that puts money into your pocket and a liability as anything that takes away money from your pocket’’.

Robert’s definitions are great and relate to our daily lives, because as human beings we make, spend or waste money every day and we need to know the differences between assets and liabilities are. When we spend money, we should spend it more greatly on assets and very less on liabilities.

Whether it is personal or corporate expenditure, the quest should be to spend more on buying assets rather than wasting the little funds on liabilities that drain us and our organizations financially.

Some assets to buy are:

  • Hotels, hostels, hospitals, guest houses, office complexes, schools, colleges, churches, universities that bring money home
  • Pieces of land to sell later for more cash
  • Building houses and rent them out or sell them for more cash
  • Pharmaceutical shops for sale of drugs, shopping malls, sheds, stores, warehouses, that bring money home
  • Taxes, buses, trailers, articulated trucks, aero planes, ships, trains, that bring money home
  • Build companies in any industry that will bring more money home
  • Treasury bills, fixed deposits, call accounts, mutual funds, unit trusts, real estate investment trusts (REIT) these can bring more money home
  • Specific assets that will defer tax payment for your organization
  • Diamond, gold, and other available minerals whose value will appreciate depending on the world market price to bring more money home
  • Farming-cocoa, cotton, coffee, onions, carrots, cabbage, lettuce, spinach, cassava, plantain, banana yam, potatoes, millet, sorghum, beans, maize, wheat, mangoes, guava, oranges, peas and avocadoes, pawpaw, watermelon, palm nut, coconut, shea-butter nut, all edible berries to sell for cash
  • Constructions of dams, boreholes, wells, canals, lakes, swimming pools and others to rent out or even sell them for more cash.

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Liabilities by Robert’s definition: they don’t put money into your pocket

  • Personal effects, TV set, home theatre, personal car that does not get maintenance and fuel allowance from the work side.
  • All the things that would take away money from your pocket are liabilities.Any time, you have some money to spend, ask yourself whether you are going to spend on buying an asset or acquire a liability.

To be financially free now and in the future, we should buy more assets than liabilities.

~ Godwin-Xavier Ayeebo