The difference between assets vs liabilities is, “an asset makes you money, and liability takes money away from you”. This is one of the main reasons for the enormous gap between the rich and the poor.
The rich fully understand this concept and put it into practice every day. What’s left of the (so called) middle class have very little knowledge on this. Thus, most don’t make any effort to learn how to implement the correct strategies to grow wealth. The poor (which is the overwhelming majority) just don’t have a clue what I’m talking about. This is mainly a result of who they surround themselves with.
Let’s explore the differences in the way each of the three “net worth classes” think and how they got to be this way.
First The Poor
Since the “poor” class is the massive majority, let’s look at some of their behaviors and ways of thinking. If they work (and many of them do), they wake up and go to a job they most likely don’t like. But they do it because they have to pay the bills.
- They show up when they are told to be there.
- They do tasks of the job description until they’re told they’re hungry and must eat.
- When told, they work overtime.
- They do tasks of the job description until they’re told to go home.
- They see their families when the employer says it is OK.
- Their employer tells them how often they can be sick during the year.
- They work for 50 weeks and get maybe 2 weeks for themselves. Only as long as it fits within the business’s schedule.
- The short time that they’re not at work, they fill their time with trash TV (sports, reality tv, etc.), mundane tasks, and other time-wasting activities that get them no closer to escaping the employment trap. It’s a trap because they can’t control their own time. Which is our most precious asset.
- The people they surround themselves with are at the same low level, or lower than them. That’s the only influence they ever get.
- They earn just enough money to pay the bills (sometimes less) so they’re sure to keep showing up to work.
- If someone ever does try to get out of the trap, the others will use words and actions (their opinions) that pull them back into the trap.
- They basically veg out each night in preparation for getting up the next day and doing it all over again, day after day after day……..
Sounds harsh, I know. I’ve been there and the reality stings a bit. But I needed to hear this and understand it, in order to break free. Anyone who wants things to change, must change themselves first.
The Non-Working People
Many don’t work. They just take advantage of our corrupt social support systems. This causes the working people to have to work harder and live on less, to support the non-working people.
- Anyone who has worked to provide for a family knows how hard it is to get by, so by not working, people should know what a burden they are on the working people.
- Those who never worked to support a family and still accept social support may or may not care that others have to work hard to support them. People are different and so are their individual situations.
I know some of this is hard to hear and accept, but read on. It’s not always easy to accept the truth.
- Daily life is surrounding themselves with others like them. This leaves them with nobody to show them the way to a better life.
- They have lots of time on their hands so it often leads to drinking, drugs, depression, or fighting. Likely because most of them just feel trapped in their situation.
- “Most” of this group has no ambition or thought of making a better life for their family (though some do). They have either given up or are comfortable with life as it is (provided by the working people).
- Most are well aware that their support benefits are paid by the government, but may not know (or care) that the government has NO money. The government simply redistributes money from the hard-working people through taxation to the non-working people.
The fact is, that the non-working class generally has No idea what I am talking about in regards to assets vs liabilities. They generally only have liabilities and are consumer focused. The power of assets was never taught to them. One thing for sure is, that with all the free time this group has, success could be literally right around the corner.
Why? Because if they used their time to study from great resources, and took action on that information, amazing things would happen. I’m not just talking about this website, but there are many fantastic resources on the internet. My hope is that they land here for a reality check, and get inspired to provide themselves a better life.
What’s Left Of The Middle Class
The middle class is all but wiped out, so in reality, what we’re left with is a couple levels of poor (upper and lower). The reason for this, is because the gap from the “upper poor” to the “lower rich” is so HUGE. Within that size gap, there just aren’t enough people to actually create a class called “middle”.
This massive transition began at the beginning of the Information Age and the end of the Industrial Age. The middle class, at this transition time, still had the mentality of the Industrial Age (go to school, get a job, retire after 40 years). However there isn’t much use for that here in the Information Age.
Your last employer will no longer take care of you for the rest of your life. Those days are gone. Now with the IRA system, you are forced to be a stock investor, or have a portfolio manager who you pay for. The recent stock market has boomed, but it always crashes again, no matter what you do.
Baby Booming Our Way Into The Future
Our largest demographic at that time (the middle class) consisted of mainly the Baby Boomers. As the industrial age was ending, we stopped producing products. Those factories used to be assets to the owners and stockholders, as long as there was profits from production. Once production stopped, all those abandoned factories became huge liabilities.
The next shake-up was the advent of the internet. People began to see the potential for business over the internet. However, not many of the stock investors knew a lot about it. It was just exciting! So a lot of dumb money poured into internet companies who made wild claims and that’s about all they made. The Dot Com rage went crazy! There was just one problem. The Dot Com’s produced nothing.
Most of these stocks turned out to be terrible liabilities. So much money was lost! When I say lost, I mean it changed hands. In the stock market, when someone loses, someone else wins. In this case one persons liability is another’s asset. Professional traders just “sold short” those terrible companies and made fortunes.
Where’s My Money
Another problem that wipes out the middle class is the increase in the amount of money the government removes from the working class. This is done in many ways. Why many ways? It has to be done in multiple ways, so it’s more difficult for the people to realize just how much is being taken. The realization of just how much of one’s earnings are taken away, could cause mass revolt.
Most people just accept that taxes that are taken from their paycheck. However, the reality is, most never look at it. They only care about the dollars they take home. So accepting the 33% to 50% tax is one thing, but what about the unseen type of tax?
There are many unseen taxes, but just as an example, how about our money supply? The fed prints trillions of dollars for bailouts and many other reasons. This devalues (reduces buying power) all existing dollars. For example, imagine that $100,000,000 represents all the existing wealth that covers the value of all things (as if, lol). Now the overseeing government prints off another $100,000,000. Instantly, the value of each of the first $100,000,000 only buys half the amount it used to, because now the total of everything costs $200,000,000 (twice as much).
The citizens under that government are in fact the government’s assets. Wait,what?! Every person that pays taxes to a government is the government’s asset, because they make the government money. The government then has money to spend as it sees fit. Much of that money goes to the social programs we spoke about earlier.
Back To The 80’s
So for instance, $100,000.00 in the bank and being debt free made you well off back in the 1980’s. Fast forward to today, it makes you “upper poor”, depending on your age of course. If this is you at age 30, the statement is valid. If this is you at age 60, you have some serious retirement issues.
Again, while some of this group may know the difference between an asset and a liability, most just don’t grasp the reasons for owning the asset, so they are HUGE consumers of liabilities. If you go to your job, then pay all your bills, that’s great. But if there is money left over, most people are going to use it for liabilities, like a TV, Dinner out, etc..
Grab Your ASSets
If people in the middle class would just start to use the extra money for buying assets, they would have multiple flows of income and expand their wealth. Just starting small, they would still see growth happen.
The reality is that the middle class, slid backwards (except the lucky few who bought mined bitcoin in the early days, LOL). Thanks to the government devaluing our currency via currency creation, basically that 100K back in the day, now, requires about a half million to maintain that same status.
That’s how fiat currency works all around the world, and that’s why the technology behind non-government crypto-currency is so intriguing. Crypto-currency is kinda like gold and silver (you need to have some of this) where it cannot be reproduced to devalue the rest. Both Crypto as well as silver and gold, could be an asset or a liability depending of the demand for them. Owning some of each could make your wealth really grow, but all act as a hedge against currency creation.
Theoretically, crypto has a set number of coins to distribute, so the only variable is demand. Gold and silver can be mined out of the ground, but there is still a fixed amount in existence. We can’t just make more of it. So again the price variable is set based on demand. Fiat currency, which is all government currencies right now, can be produced at the will of the government. Clearly this is an asset for each government and a liability to all who hold it.
This is one of the hidden taxes that most pay no attention to, because it’s done to them behind their back without notice (for the common person). Assets vs liabilities….. in most cases is profitable for one person and costly to another.
The Small But Growing Class “The Rich”
The class called the rich, used to be much larger. As we moved into the information age and fewer people adapted, many of the rich became “upper poor”. Those who adapted to the rapid changes in the way consumers buy, have done VERY well.
As technology continues to alter the way the world operates, there are many more things that can be defined as an asset, or a liability. There are some things that used to be assets prior to the internet, that actually became liabilities. The people defined as rich, clearly know the difference between an asset vs liability in today’s world. Again, the rule never changes, so people have to adapt to outside changes in order to follow the rule.
It is only an ASSET if it returns more money to you than you put into it.
Rich Of The Past
I remember when my bank account earned over 10% interest. That 10% cashflow account was an asset. Not great but still an asset. Now money is devalued so fast, our current interest rates can’t keep up with the forced inflation and hidden inflation, so savings accounts are now liabilities.
In the mid 2000’s, unsavey people thought that their homes were assets. They actually never were, even with the fast appreciation before 2008. But as it turned out they turned into MASSIVE liabilities! Your home is not an asset, because it doesn’t pay you more each month than it costs you. On the other hand, if it was a rental home, that cashflows every month, it would be an asset.
Your Home Is A liability! Your Rental Home Is An Asset!
The reality is, most of those who had cash flowing rental properties during the crash of 2008, never got financially hurt. The property still produced positive cashflow. Since then, the rental market has only gotten better. All the homeowners that lost their homes still needed a place to live, so they became tenants. Landlords have greatly benefited from the 08 crash.
Oh, and all those foreclosed homes became liabilities of the government after bailing out the banking system with printed money. The bailout was the US Government buying these foreclosed properties at face value from the banks. In other words, those foreclosed homes became the taxpayer’s liabilities!
Kill The Cow, Or Milk The Cow
If you own a home (or you and your lender own your home) that you live in, you own a liability. Yes, everyone needs a place to live, however it does NOT produce positive cashflow for you. It cost you money so it’s a liability. We just need to accept and define it as it is.
If you buy a house, rehab it (add value), and then sell it for a profit, you owned a liability until that one second when you were handed a check at closing. That one-time action and only for that one second, it was an asset. BUT, you killed the cow! A true asset continues to produce income for you over and over. The more passive assets you acquire, the easier life gets and the more of your time you control.
(Full disclosure: I made a lot of money flipping (buy, rehab, resell) homes.) It’s not a bad thing as long as it fits your financial plan. Flipping can be a great way to build capital for bigger cash-flowing assets.
Passive Or Active
Investing Passively, is the ultimate way to make money! Passive means that you put money in to acquire the investment, but you don’t have to put in any more effort (or very little) to keep the asset producing. You just collect the returns on your investment. The investment is completely managed by someone else. On the other hand, Active investing is exactly what it says. You actively have to work to get a return.
If you own an online store/website that sells widgets. Let’s say you order them from China and ship them to Amazon to do FBA (Fulfillment By Amazon). Each widget total cost for the product along with FBA fees is $10. Your store sells them for $30 each and FBA handles all aspects of that delivery and customer support. Every time one sells, your cashflow is $20. Let’s assume you average 100 sales per month. Your monthly positive cashflow is $2,000. You own a business as an asset!
I own some shares in Cardone Capital that produces monthly positive cashflow, along with forced appreciation through “value add”. This investment is called “completely passive cashflow income” and is certainly an asset. Why? Because I have to do no work for my return on investment. I didn’t have to find the deal, manage the deal in any way, or sell the deal.
So There You Have It
I’m sure you get the idea on the difference between Assets vs Liabilities now. The rich clearly know that they get rich by acquiring assets vs liabilities. Not that they don’t own some liabilities. They just focus on assets. When they do acquire liabilities, they have their assets pay for their liabilities. So, if you want to ever be rich, then focus on what the rich focus on to build wealth. ASSETS!
“Note”
This Assets vs Liabilities article is one of my first writings, so I know the message wanders a bit. My abilities as a writer continues to grow in an effort to pass along my decades of experience as an entrepreneur, over to you. The whole point of Profit vs Wage is to convey the path to a better life. If you can learn the true differences between Employees vs Entrepreneurs, you will begin to understand how the rich build wealth.
