Stop spending on things that decline in value
When you start analyzing the difference between your assets and liabilities, chances are you will realize you have spent a large amount of money on a lot of things that lose value over time. It is common for a lot of people to buy appliances, furniture and gadgets that we can actually live without. We thing these things are assets, but actually they are not. This is why it is very important to stop buying on impulse when something you want is for sale. Before buying, ask yourself if you really need it or not. Remember, every penny spend is another penny lost that would otherwise go to your savings.
This is why it is important to know the difference between an asset and a liability. To know what an asset or liability is you must first make a summary of your total assets and liabilities. If you keep a list of your total assets (Cash, Property, Receivables, investments and insurance) minus liabilities (Loans and everything payable) you get your net worth. Here you will find out whether your expenditures are increasing your net worth or not. "Assest put money in your pocket. Liabilities take money out."- Robert Kiyosaki.
If your are a salesman will a car be an asset or a liability? Well, most of you would answer that it is an asset because a saleman would need a car to move around and sell his products or look for new costumers. In principle, this is correct. But it may not be so in personal finance.
You may be rich is assets however it might not increase your net worth. Most of your neighbors spend and spend for a "better lifestyle" but they are not actually increasing their net worth. If they placed their money on government securities rather than spending it all the time they would have accumulated a much higher cash value for their investments. Here their money would truly grow and so would their net worth!
Some people buy and sell gold or jewelry. Some keep them for investments because, according to them, the value of jewelry over time grows faster that other types of investments. This is not entirely true. What will make it right or wrong depends on the financial situation of the investor. It is a good business if you have a good market and know which items to sell. But, if you do not have sufficient resources, you might just end up being forced to sell your jewelry at a loss to cover your expenses. The value of any asset depends on what the owner can do with it. So, ultimately, the disposition of any asset has to result in an increase in personal net worth otherwise it is a liability.
This is just the third step and we still have a lot more steps to go to financial freedom here at Compound Savings Interest.
When you start analyzing the difference between your assets and liabilities, chances are you will realize you have spent a large amount of money on a lot of things that lose value over time. It is common for a lot of people to buy appliances, furniture and gadgets that we can actually live without. We thing these things are assets, but actually they are not. This is why it is very important to stop buying on impulse when something you want is for sale. Before buying, ask yourself if you really need it or not. Remember, every penny spend is another penny lost that would otherwise go to your savings.
This is why it is important to know the difference between an asset and a liability. To know what an asset or liability is you must first make a summary of your total assets and liabilities. If you keep a list of your total assets (Cash, Property, Receivables, investments and insurance) minus liabilities (Loans and everything payable) you get your net worth. Here you will find out whether your expenditures are increasing your net worth or not. "Assest put money in your pocket. Liabilities take money out."- Robert Kiyosaki.
If your are a salesman will a car be an asset or a liability? Well, most of you would answer that it is an asset because a saleman would need a car to move around and sell his products or look for new costumers. In principle, this is correct. But it may not be so in personal finance.
You may be rich is assets however it might not increase your net worth. Most of your neighbors spend and spend for a "better lifestyle" but they are not actually increasing their net worth. If they placed their money on government securities rather than spending it all the time they would have accumulated a much higher cash value for their investments. Here their money would truly grow and so would their net worth!
Some people buy and sell gold or jewelry. Some keep them for investments because, according to them, the value of jewelry over time grows faster that other types of investments. This is not entirely true. What will make it right or wrong depends on the financial situation of the investor. It is a good business if you have a good market and know which items to sell. But, if you do not have sufficient resources, you might just end up being forced to sell your jewelry at a loss to cover your expenses. The value of any asset depends on what the owner can do with it. So, ultimately, the disposition of any asset has to result in an increase in personal net worth otherwise it is a liability.
This is just the third step and we still have a lot more steps to go to financial freedom here at Compound Savings Interest.
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