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How Do You Know a Liability When You See One?

Do you want to reduce your expenses?

I do. I want to have more money at the end of the month than I had at the beginning of the month.

And you do too.

And that’s a real difficult challenge.

But don’t give up hope yet. We can do it.

In case you couldn’t tell, this post is a continuation from yesterday’s post about assets.

These two posts go hand-in-hand.

We need to start with knowing what causes those expenses.

Liabilities cause them.

So what is a liability?

I thought you’d never ask.

What is a Liability?

Let’s look at Investopedia’s definition:

A liability is a company’s financial debt or obligations that arise during the course of its business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

Investopedia doesn’t make this easy.

Let’s make this simple.

A liability costs you money.

In other words, a liability takes more money out of your pocket than it puts in.

That’s it. Don’t make this more complicated than it needs to be.

What are Some Examples of Liabilities?

This list is quite lengthy.

Your personal car, cable TV, electricity, personal lawn equipment and your personal home.

Let’s dive into your personal home for a second.

This one is a bit controversial.

Think about this for a second. If you buy a home, live there for 5 years and sell it for more than the price you bought for, do you actually make money?

If you pay $1,800 to the bank every month for your mortgage, property taxes and insurance, you paid $108,000 in 5 years.

I doubt your home went up $110,000 in 5 years.

And that doesn’t even consider home maintenance.

Don’t get me wrong, I still think owning is better than renting (an article I will write later), but don’t expect either to make you money.

How to Turn a Liability into an Asset

Here’s the great part.

With new technology and company innovations, there are products that help you turn liabilities into assets.

I wrote yesterday about turning your car into an asset with Uber.

But you can also turn your home into an asset.

I knew that would peak your interest.

In case you live under a rock, I am talking about Airbnb.

You can rent out rooms in your home to people coming to your town and that don’t want to stay in a hotel.

Here’s a guide to help you get started: Airbnb Hosting Guide.

They claim you average $350 a week if you host. That’s pretty good.

You gotta love innovation. This one gets strangers to pay your mortgage.

Summary

Liabilities can be simple if you simplify the definition.

If it takes more money out of your pocket than it puts in, it’s a liability.

You want to reduce your liabilities as much as you can.

Fewer liabilities make it easier to become financially independent.

That’s my dream. It should be yours as well.

What other ways can you turn liabilities into assets?

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2 Comments

  1. wow, awesome blog.Thanks Again. Fantastic.

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