Do you have the assets to pay for your liabilities?

25 12 2009

No. I am not talking about your home with mortgage.
No. I am not talking about your hire-purchase vehicle either.

As most people understand, the mortgage of their home is the liability. You owe the bank money. In return, you need to charge your house title to the bank as collateral. So you think you actually have an asset to pay for your liability. You think your actual home is the “asset”, that when you can’t afford the installment, it can pay off your mortgage by being auctioned to third parties. You are right, but it won’t get you rich.

For the rich people with higher financial IQ, they know that the house they are staying in is actually a liability. It is a luxury item. It takes money out of your pocket! In fact, it takes more money than you think. Beside the mortgage installment, you are paying for the renovation, electrical appliances, household bill etc.

Now, let’s come back to the golden question: DO YOU HAVE THE ASSETS TO PAY FOR YOUR LIABILITIES?
A local entrepreneur in pre-school education wants to have a new S-class Mercedes Benz. That’s a liability. He recruited a new talented business partner and opened up another kindergarten. In 3 months time, the child care and education centre is giving him RM5000 net profit every month. His partner is taking care of the centre, while he is shopping for his new luxury car. That’s an asset.

Creative Commons License photo credit: mujitra

I have some down line agents who are very independent and making sales week after week. I trained them in the first few months in business, and they can practically do business on their own after that. I got overriding commission from every sale they make. They are my assets. They help to pay for my car loan, myliability.

So, do you have the assets to pay for your liability?



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