Think you know the real definition of assets and liabilities?
Watch this video and you may find yourselves surprised.
What's up guys, Max, here, let's go over the difference between an asset and a liability. There is so much confusion on what both of these things are. And I promise you what your parents are, what the school system or whoever has been giving you or very bad education your whole entire life has not told you the difference. And the differences are really important because if you want to build a financial future with the foundation first, you know the foundation.
Right, which is usually slab concrete, very, very, very, very tough to break.
You're screwed. So let's put on the foundation right now, figure out the difference between an asset and a liability and what the actual differences are.
Let's go before we get to what the actual definition of an asset versus liability is.
Let's look at how the world and everybody else defines an asset. All right. According to Merriam Webster, an asset is the property of a deceased person, subject by law to the payment of his or her debts and legacies. All right.
That's fair asset. Thank you. One more time asset. Thank you. And I actually think the only real definition of an asset here is actually, to his wit, is his chief asset. Oh, my goodness. It's it's amazing how how how not true. Any of this is what's even more an asset. OK, so let's go to nerd wall. Nerd Wall does a really good resource for credit information that I've used. But again, assets, cash and cash equivalents, tangible assets.
So things you can actually hold intangible stocks, bonds, liquid assets, cash, illiquid or fixed assets, fixed income, assets, equity assets. It's just really amazing. Nerd wallet even doesn't know what assets are and then go to Investopedia. I've used Investopedia. Investopedia was probably the number one source recommended to me during finance school business school. So take it for what it is. What is an asset. OK, let's do the Investopedia says and asset is anything of value or a resource, a value that can be converted into cash.
Individuals, companies and governments own assets for a company. An asset might generate revenue. There we go. Now we're starting to get on the right path. Or a company might benefit in some way from owning or using the asset. Well, OK, that's really not it. Now, this is really how you've been told an asset is an asset, is something you can hold. It's a house. It's a car. It's anything that's worth the amount of money.
But that's completely false. Completely false. And asset is really simply this. And asset is something that puts money into your pocket on a regular basis, like monthly, like every month, like every year, every six months, whatever that is. It's something that takes money from other places and puts it into your pocket to you.
For you to consume a liability is the opposite. A liability is something that something that takes money out of your pocket. You have to pay. So the question is, is your house an asset or a liability? Well, what do you think? Unless your home actually makes you money, it's a liability. Now everyone says, but it's an asset you can sell for money. Yeah, I don't really care about the long term capital gains. I don't care about the profit down the future.
I intend to hold and keep, keep and hold on. All my assets. All my homes. Why?
Well, it seems like inflation is only going one way right now. So the question is an asset versus a lot of B, what is the difference? Well, that's that's easy to put. An asset puts money into your pocket and liability throws it out. So the question is, do you want to have more assets or more liabilities? So rich dad, poor dad is the best selling financial book ever. Let's go to that. This is the little graphic that Robert has used for a long, long, long time.
So this is the middle class. This is what you've probably been taught your whole entire life. OK, so you're paid from your job.
You get your income. Your income. Then circumvents the asset side again, asset is something that puts money into your pocket, your income goes from income and it goes to a liability, liability is actually an expense and then it goes out. Now, this is the pooper. This is where all the money that you never see ever goes again. So it's good to get the income. That's a good thing. But the income and the middle class goes to the liabilities, the expenses, and that's gone.
So let's use a real life example. So you're working a job, you get your paycheck. Very good. You then buy a home, which can be a good thing, you need a place to live. But the home, again, unless you're renting it out for a profit, is a liability, so you get your income, you pay for your liability, which is your home, it's an expense and it goes by the wayside car, anything that takes money out of your pocket as a liability.
It's that simple. Now, this is what the rich do. So if you want to get rich, this is what you need to know.
Build assets. Which is in this case, real estate, income producing ventures, whatever it may be, that actually creates an income for you on a regular basis. So like you would lose a home, for example, real estate. So. The money comes from the real estate, the rental, it then goes straight to your income. Now, that's a real asset. A home that you don't make any money on, that is not an asset, a car that you drive, if anybody ever tells you a car is an asset, you need to laugh and say.
Shake your head and be very, very sad for that person, because they are told they bought the lie that they need to buy fancy things and buy big things to have assets. The reality is a tiny rental property is more of an asset that profits 200 bucks a month than that brand new Mercedes. A business that creates a significant amount of recurring income or even you an insignificant amount of recurring income, that's an asset, not a liability.
So the question you ask yourself is, do you want to have more assets or liabilities? Now, I don't know about you, but I'd much rather have a hell of a lot more assets, but that assets takes time to buy and it's. You can't imagine to have all your assets in one year, you can you can create a hell of a lot of liabilities in the air, though, that the people don't understand, creating financial future, creating that Empire State building, creating that huge tower of financial freedom.
It's not done overnight. It takes a long, long time to do this. So the fact of matter is that an asset, a liability question, what's the difference as that takes money and puts it into your pocket and liability, throws out money, figure out the difference. Do not listen, Investopedia. Do not listen to anybody who says an asset is something that is worthwhile, has economic value. That person does not know what's going on. Ask them how did your portfolio, the pie say?
Well, I have a lot of stocks, bonds and mutual funds, which is good for most people.
But the reality is if you don't if you're not investing anything like this, something tangible that's real, you're going to be in trouble because inflation right now.
And what does this mean, June? Twenty twenty one inflation right now is absolutely insane. The corn I just bought was seventy five cents a year. Three months ago, no joke, four months apart, near the beginning of two thousand twenty one, the year of corn costs about twenty six cents. It's gone from twenty six cents to about seventy five. That's three times the inflation that the government posts is complete rubbish. Do not believe it one bit.
They put jet planes in the basket of consumer goods. Now, I can't say Ebony jet planes the last week, but I bought plenty of milk, groceries and meat which have all been skyrocketing. Have you seen? No. It's absolutely insane. Inflation is right around the corner and buying assets. Not that this is an asset, but this is to protect your wealth, buying assets that create residual income. That's about real estate. That's where it is, because you can keep on raising the rents as inflation goes.
You can't do that with almost anything else, you can't just say one day, oh, I'm going to sell this for a new price. Well, good luck. Housing is a different story. Housing people always need. So finding something that people really always need, like housing. Stick with that. But the reality is this. If you want to actually be rich, you need to create assets. You need to these assets need to go into your income, because right here, the income as an employee, you pay the most amount of tax, not even close.
It's not even close. Professional athletes who make a lot of money as an employee pay a ton of tax, probably around 50 percent, depending upon what state you live.
That's a ton of money, and they usually circumvent and buy fancy stuff and then the money's gone. How many how many people have you seen who've been superstars? And then five years after retirement, there have nothing. That's the usual story. It's crazy. Create the assets, create something that creates residual income, that gives you money every single month, every week, every day, every year. Doesn't matter what the frequency is, but it's something like brings you stuff every single period.
So that's an asset, a liability. Now, when I hear what you guys think, is that different than what you were taught and it was different, I was taught. I'm glad I read this book when I was when I was a lot more of a young man, because the reality is a home is usually not an asset and a car is almost almost always an asset. So get your definition straight.
I see you guys the next one.