WHAT RICH KNOWS AND WE DONT! PART-2

An ASSET is basically something that regularly puts money into your bank account and increases your net worth. whereas LIABILITY is something that takes money from your bank account regularly ,which also keeps on reducing your net worth. now let's take this analogy of two brothers in a middle-class family named fatty and patty (go through the image).

Among these two brothers whom do you think is a real asset to the family and also whom do you think is a liability, to the family right now?

Yes you are right, fatty at present is a liability to the family because he just gets more and more expenses by partying regularly, eating more junk foods and also hospital expenses since is very prone to ill health, while patty is an asset to the family because every day he is adding value to the family by this routines, he stays fit, has a disciplined diet, concentrates on studies, sometimes he also reduces expenses of the family by taking responsibility of the household works on his own.

I hope the above example gave you the rough understanding of assets and liability.

Now let's dive into the live examples and understand assets, liability in poor and rich people point of view

Financially literate or rich people smartly put their saving into money generating products that generates money regularly, so now they have additional income from assets + regular income, but still, they tend to buy luxury only from their additional sources of income, that too when it is substantially good and more than a threshold, Rich people buy those only if they could afford them twice, Let's say they bought Rolls-Royce worth rupees 3 crores it means that they have the additional income generated from the assets which is more than 6 cores + the income from the regular sources, again the remaining money will be put back to the money-generating assets and cycle repeats, its the way"the rich gets richer".

These are just the basic rules followed by the people who have gone from the atlas cycle to Mercedes Benz.

whereas poor/middle-class people, they usually buy things which are more than their net income, ex- they make 4 lakh rupees worth of interior with the salary of 40k or buying a car worth 15lk with a salary of 50k, so this type of uncalculated expenses would eventually create liabilities to them, in the form of EMI, interests, compound interest, penalties etc,

So poor/middle-class people buy things thinking that it is an asset and would increase their net worth, but actually it turns out to be a liability to them.

I hope now you have got a clear Idea regarding the meaning of asset, the difference between asset and liability, the major mistakes poor/middle-class people basically repeat due to which they stay poor forever and also the basic technique rich people use to stay rich and to get more wealth.

POINT TO BE NOTED-

"You cannot get rich if you don't own a business" it is actually a myth because American senior surgeons are more wealthy then avg business owners, any individual being an employee or entrepreneur or self-employed and etc can get rich financially, if they possess a stable income, deep understanding of financial literacy with very good investment skills.

In this blog I have not spoken about money generating assets and their types, I have only mentioned assets and have not specifically mentioned, exactly where rich people put their money on. so I would try to brief it out in the next blog, which is the last blog of this series and also I will share some simple accounting diagrams, which are influenced from the book "rich dad and poor dad" and finally we will end with a note of caution, which is most important among all other topics because all these topics end with the term investment and investment is always subjected to huge risk.

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