Wondering why you’ve been going round and round with flailing finances? Could it be that your assets are really a liability? Today we’ll take a quick peek into what makes an asset an asset and how to tell if your biggest investment is just a liability-in-hiding.
One of the wonderous things about being stuck in the rat race is that you’ve got a front row seat in seeing the injustices in this country’s tax system. For example, if you don’t make more than $142,800 a year, you’re required to pay the largest of all taxes, Social Security tax on all of your income. My point is everyone should be paying social security on all of their income. Not just the poor. And don’t kid yourself. If you’re making less than $142,800 per year, you’re poor. The proof comes when you are self employed, making under that benchmark amount and have to find health insurance. Here’s another secret. If you’re rich, you don’t have health insurance in this country. Why’s that? Because you have enough money set aside to cover even the most expensive health care procedures and not lose sleep over it. That’s one recognizable unjust difference every American can petition their local government official to change.
Now, how do you become rich? Identify and invest in assets. What’s an asset? An asset adds money to your wallet. A liability takes money out of your wallet. You must use a balance sheet to keep track of a particular “investment” to determine if it is adding money to your wallet or if it is taking money out of your wallet. The rich have assets that add money to their wallet. The poor have liabilities that take money from their wallet.
For middle to low income folks their largest “investment” is their dwelling. But a balance sheet that includes things like the monthly property tax, maintenance costs, utility bills and insurance (assuming you own the property outright and don’t have a mortgage, which is money out of your pocket every month in addition to those other monthly bills) turns this asset into a costly liability. Sure, you’ll realize profit if you ever sell the home but in the meantime the money that’s tied up in the property is missing out on investment opportunities that could be making money which could be reinvested. And with no extra money to invest, investing doesn't happen. Investing is an activity. In order to do so successfully one must be active. Active in research, active in decision making, actively watching the market. It’s too easy to become satisfied with leaning on homeownership as a retirement plan that will invariably underserve.
The best investment opportunities are discovered by those who actively invest and intern are sold to those who take a back seat to investing.
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