The Difference Between an Asset and a Liability
The Difference Between an Asset and a Liability
In order to be more successful, it is important to understand and apply the distinction between assets and liabilities.
The concepts of asset and liability apply in many situations.
- Some properties are assets and others are liabilities.
- Some people can be assets; others are liabilities.
- Some habits are assets and others are liabilities.
Property: An Asset or a Liability
A piece of property is an asset only if it generates a net income and / or gains value over time.
For example: If a landlord owns a house and he lets it out in exchange for rent, then the house is an asset to the landlord, because it generates an income. And the house itself gains value over time.
But, if the same landlord owns a car, then the car is a liability, because the car costs money to keep on the road, and it is decreasing in value every month.
- Cars tend to lose value over time, and cost money every month to run, so they are a liability.
- Rental houses tend to gain value over time, and earn money every month so they are an asset.
If you are thinking about financial matters, the goal in life is to minimise your liabilities and maximise your assets.
Now let us apply that to other areas of life.
Minimise liabilities and maximise assets.
Some people are assets; others are liabilities.
- Some people tend to add value to your day. They make life easier, better and more productive.
- Other people detract value from your day: they make your life, harder, worse and less productive.
Some people give more than they take. These people are assets.
Other people take more than they give. These are liabilities.
Do you have anyone in your life who takes a lot, but does not give much in return?
If yes, ask yourself, is this person more of a liability than an asset?
You and your life systems cannot afford to carry too many liabilities.
Some of your habits are assets and others are liabilities.
We are all creatures of habit.
- Some habits make us better. They are assets.
- Other habits are liabilities. They make us worse.
Do you have any habits that are a liability to you?
Seek-out and destroy any bad habits that might make you a liability to yourself or others.
Destroy any elements of laziness, neglect or spite that might be lurking in the shadowy corners of your character.
Maximise any habits that are an asset to you.
Do you have any virtuous habits that make you a real asset to others? Are you hardworking, honest and cooperative? Let the rest of the world feel the benefits of your assets.
Maximise your assets.
Minimise your liabilities.
Quiz: How Good Are Your Work Habits
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Definition: Asset
In personal finance and self-development, an asset is a resource that puts money or other clear gain into your pocket, rises or at least holds its value, costs less to keep than it pays back, and strengthens your financial or personal position.
Show CG4D Definition
- Provides a net cash flow or direct useful gain
- Gains or keeps market value over time
- Ongoing costs stay below the returns it gives
- Improves the owner’s financial or personal strength
Article Summary
An asset pays you; a liability drains you. Apply this simple rule to your money, your friends and your daily habits, then keep what adds value and drop what costs you.
Frequently Asked Questions
Here are some questions that frequently get asked about this topic during our training sessions.
What is the key difference between an asset and a liability?
Is my own home always an asset?
Why is a car often classed as a liability?
How can people become assets in my life?
Which everyday habits count as assets?
What steps help me minimise liabilities quickly?
Is there a simple quiz to check if my work habits are assets?
Thought of something that's not been answered? Ask Us Today!
Did You Know: Key Statistics
ONS data show the average UK house price rose from £232,000 in March 2020 to £299,000 in March 2024, a gain of about 29%, turning many owned homes into stronger assets. The FCA Financial Lives 2023 survey finds that 28% of UK adults have low financial strength, meaning their bills and debts leave no spare cash to build assets.About the Author: Chris Farmer
Chris Farmer is the founder of the Corporate Coach Group and has many years' experience in training leaders and managers, in both the public and private sectors, to achieve their organisational goals, especially during tough economic times. He is also well aware of the disciplines and problems associated with running a business.
Over the years, Chris has designed and delivered thousands of training programmes and has coached and motivated many management teams, groups and individuals. His training programmes are both structured and clear, designed to help delegates organise their thinking and, wherever necessary, to improve their techniques and skills.
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