Financial
Literacy can be defined as the ability to make judgements based on good
information. It is also the ability to
understand how money works in the world; how someone earns or makes money, how
that person manages it, how he/she invest it (turn it into more) and how that
person donates it to help others. Before
you begin to accumulate wealth, it is extremely important that you try to fully
understand money and how it operates. Learning the basic accounting principles would be a great start. In college, I was required to take 12 hours
of accounting and I was not fond of the subject, but now I certainly understand
the importance of the subject. In this
blog will take a look at the Balance Sheet, which is one the very first things
you learn about in the exciting topic of accounting.
Related: The Importance of
Accounting
Assets
Assets
are things that have a lasting value. An
asset can include: a home (real estate), investments (stocks, bonds, mutual
funds, cd’s, pension/retirement plans), a business, jewelry, professional
paintings, antique cars, and of course cash money.
All of the assets listed above,
are things that are tangible or something that you can touch and feel. An Asset can also be something that you
possess that could potentially earn income for you or put money inside your
pocket. That type of asset can include,
education & knowledge, or a particular skill, such as: comedian, hair
stylist or barber, tax preparer, chef, surgeon, athlete, or an artist. All of these individuals have potential to
earn money off of their skill and/or talent, and some will earn more than others
based on how well they perform their skill.
The more ASSETS you have, the
better! In Robert Kiyoski’s “Rich Dad, Poor Dad”, he said you can be considerded
Financially Independent, when your total assets combined are able to continue
to pay for your monthly living expenses on an ongoing basis. Wealthy individuals are able to do this
consistently while continuing to increase their asset column and minimize their
expenses (liabilities) column.
Related: The
7 Rules to Acquiring Money
Liabilities
Liabilities is something in which an individual is responsible for,
especially a DEBT or
a Financial Obligation. Good examples of
liabilities would include: car notes, credit card debt, student loans, mortgage
loans (if you are the borrower), payday advance loans, health care bills,
business loans, or any other outstanding debt.
Whether you’re an individual or a business, you typically would like to
decrease your liabilities and increase the amount of your assets.
Liabilities in most cases take
money out of your pocket, while assets put money back into your pocket. If you are a business owner or an investor,
there are certain situations where a liability could essentially put money into
your pocket. A perfect example, would be
an investor taking a mortgage out for a second home. However, since the investor is knowledgeable,
he knows that he will get a great interest rate on his loan and that due the
size of the house and neighborhood, he could easily rent the home out to a
small family. Based on the market value
of the home, the rent would end up more than the investor’s monthly mortgage
payment, meaning that every month the home would pay the investor income,
although the home shows as a liability on his books.
Related: The Cash Flow
Quadrant
If you are looking for Quality Content in regards to the financial domain, you can contact The Alston Collab. We develop specific content by market (financial education, self-improvement, and entrepreneurship ) to increase the level of engagement by channel.
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