I personally read articles all the time where people explain the difference between an asset and a liability as it is not something that most people try to differentiate which in many people’s view is a root problem on why some people are constantly in the lower bracket in terms of being financially successful.
In general, most financially successful people would know that an asset is something that would provide you with a positive gain whereas a liability would force a negative gain upon you. Now what usually gets most people confused is that they feel that having something like a car is an asset as it costs a lot of money and so it is worth an X amount of dollars in the marketplace which makes it an asset as that is generally what is taught on what an asset is. Typically speaking, let’s say you bought a $50,000 car entirely with cash to drive to work. One would think that this should be considered an asset obviously as it is worth a lot of money. Now think for a moment how much it actually costs you to use that car everyday. How much a month would you have to pay for things such as gas, car insurance and maintenance services? In a bigger picture, how much is that car going to be worth 5 to 10 years from now? With all that in mind, basically that $50,000 car you thought was an asset is really a liability as it is actually costing you money.
A true asset, so to speak, would be something like me purchasing say this really exquisite gold or diamond piece that will increase in value as time goes by. In the bigger picture with this example, I know that people would pay money just to see it and so in both ways I am gaining and this is something that would truly be considered an asset in the minds of more financially successful people. So obviously, a true asset would be that your investment is making money for you. If I was to use that $50,000 car as an example, in order for it to be considered an asset and not a liability it would somehow have to create a positive income gain and an easy example of that could be that I own some kind of race track and everyday people pay money to drive it as it is a car that a lot of people can only dream of having. After you factor in all the expenses, I would make money out of it and so that is when it would definitely be considered a true asset.
I guess in many ways it’s the conventional style in thinking about money and investments that can get you. Like anything else, looking at things from an overall picture can provide a more clear perspective and enabling you to make better decisions.