Sunday, November 15, 2009

Rich $$$

Rich...When I hear those word there are a few images that will come across my mind. One of it is the face of Bill Gates,the richest man in the world. Second is an image of myself in a big house with the expensive sports car on the front porch and third is the image of me not going to work anymore. I guess you also share the same image right?Don't we all.

So what does rich means? Well in laymen's term rich means having a lot of money. A lot of money to spend to buy this and that. But that is a very general definition of rich. There is detail definition of it and that is what I intend to share with you.

Basically rich means having more assets than liabilities. For some of you who may hear of this word for the first time, based on, asset means a single item of ownership having exchange value while liability means moneys owed;debts or pecuniary obligations(opposed to assets). Well actually that doesn't really help in understanding the real meaning to those words. I have a more understandable definiton of assets and liabilities.

Asset means an item that you have that is able to generate a source of income to you. Providing a cashflow to you even without you working. While liability is an item that you have that does not generate a source of income to you. Instead it takes money out of you. People usually gets confuse whether the items that is in their possession is an asset or a liability.To better illustrate this let me provide you with a few examples.

An investment is a simple example of asset because an investment will make the money that you have invest grow within a certain period of time without you having to work to make it grow. Even while you are at the office from morning to evening or just sitting and doing nothing at home. You'd wouldn't be aware that the money you invested has grown. In the end, that money will be much more that the initial investment.

A simple example of liability is the very item that is sitting quietly outside your home....Your own private vehicle. Your car. A car is the most common liability that everyone owns. Right after you start driving your car from the show room, your money has already started going out of your pocket in the form of liquid. In this case it is called petrol fuel. Followed by the periodic service. Not to mention the problems or hiccups that it will experience once in awhile.

The first step for you be rich is to fully understand the concept of asset and liability. When you know how to categorise an item into an asset or liability than you won't have the problem of managing your money. The problem that you will have is how to spend all those money.

So if you you are interested to start saving your money to start investing, I have a few tips on how the manage your monthly income wisely so that you will be able to save money and also spend your money. But that is in the next post.

No comments:

Post a Comment