Secret to wealth-building revealed: Why you should buy assets not liabilities – Free Press Journal

To evaluate any business proposal or a company, we always subtract its liabilities from assets and if the residue is positive, we term it as an income-generating proposal or company. Similarly, if we have to evaluate our financial health, the residue must be positive. For that to happen, our assets must outnumber our liabilities, which later on will create wealth for the future. However, the definition of assets can be confusing. Hence, it is important to categorise generalised assets as tangible or intangible.

An asset can be an item whose value keeps changing but in an appreciable manner. This point is predominant because every economy suffers from inflation, thus reducing the value of money. Therefore, an item whose exchange value keeps on rising can help us maintain our purchasing power and achieve financial growth.

What are assets

Shares/mutual fund: Prices of stocks, shares or practically anything related to the stock market is ever-changing. Although numerous factors may decide the stock market, it is fair to say that stocks or shares have made many people wealthy. This asset creates income in the form of a dividend, increment via bonus shares, and if the stock is performing well, it creates value appreciation.

Bonds/Fixed Deposit: The type of asset which generates guaranteed returns and is a safe investment option. Government securities, corporate bonds, and bank fixed deposits are some of the examples that not only mitigate the risk of the stock market but also share acceptable returns. This has a positive impact on your wealth creation.

Real Estate: Some of us might be confused as to how real estate can positively impact one’s net worth. The reason is its predominant nature of appreciation along with its capacity to generate income via rent. There are multiple options such as direct investment in commercial or residential property or one may even consider REIT that requires limited cash outflow.

Cash at the bank: Since holding liquid cash can be unsafe, we are considering cash at the bank. The most liquid asset on the list, cash can help you at any time. Although it may not be profitable to stack money in the bank account, it may be wise to create an emergency fund.

What are liabilities

Car: The price of your car starts depleting the moment you take it out of the showroom. Although a car can be termed as a necessity, it is important to note that it is one of the money-leaking items. It includes unavoidable expenses such as maintenance, insurance cost, repairs, car loan, etc. Even after completing the tenure of a car loan, the item …….