Many people mistake liabilities for assets


In my previous article I discuss three types of investments. This article is differentiating assets and liabilities .

Many people often misunderstand the differences between liability and asset.

What is liability?

Going by my simple definition, liability is responsibility or burden. When someone have responsibility it means he/she is taking care of something, And taking care of something requires spending of money, time and energy.

What is assets?

Any Properties that has value. Anything someone could buy and sell it at valuable price is an asset

Spending money, time and energy in buying something and also making profit from it, is an asset. Asset does not required taking care of property but making profit.

Here are some example of liabilities and assets.

Liabilities are:

Cars, Loan and Bank debit

Assets are:

Knowledge, Lands and Buildings (Real Estate)

How is car a liability?

For example, you buy a car for 5 million naira in 2019, and decide to sell the car in 2021 would the car have add value or depreciated? After you spend money, time and energy to keep it in good sound.

All liabilities are important but they are not assets.