It is a known fact that everybody likes the ‘assets’, there would be hardly anybody who would like the ‘liability’ of any nature. But even if we don’t like this liability, can we completely weed it out from our day-to-day life.
Certainly not! Even from the accounting perspective, in the balance sheet of a company on one side there are assets, while on other side there are liabilities. Often there are instances that we concentrate more on assets maximization and very less on minimization of liabilities.
And this is where we make a mistake of not achieving financial independence. Thus moral of the story is - while on money matters we must comprehend both sides of the story i.e. study factors which have positive as well as negative effects on our money.
We must understand that without limiting your liabilities you can’t achieve ‘wealth maximization’ in real sense. Individually, each human being has his/her own sets of ‘Assets’ and ‘Liabilities’. While on one side we always strive hard to maximize our assets but in the same vein we must also work towards minimization of our liabilities.
For better understanding let us define liabilities in simple terms. “Liability” means something that is a hindrance or puts an individual or group at a disadvantage, or something that someone is responsible for, or something that increases the chance of something occurring (i.e. it is a cause). Now let me ask you a simple question - anything which puts an individual or group at a disadvantageous position - is it good or bad?
I know this does not require any analysis on our part, as it is crystal clear that anything which poses hindrance or puts us on a disadvantageous position must be controlled at all cost. This is what the ‘rule of minimization’ advocates when it is the case of ‘liability’.
Anything in moderation is OK and this applies to liabilities also, but the problem starts when instead of controlling liabilities we allow it to increase or escalate up to a level when it becomes unmanageable. Your ‘liabilities’ are all the amounts of money that you owe to other people or lending institutions.
And we know it very well what can happen to us if we dare to default on one of our liabilities. So the best way to avoid any trouble which liabilities can bring forth is - as far as possible avoid creating unnecessary liabilities and if you had already created few of them then work hard to minimize them. When you consistently work on minimization of your liabilities, then slowly & steadily a day will come when you will have no liabilities to attend. Remember, money is an important factor for our daily living.
It is essential to acquire food, shelter, clothes, and other necessities of day-to-day life. Because of this, having savings and investment is a head start in having a financially stable future. In addition to this, there are many things that can be done to make money. A great way to make money is to always invest in assets rather than in creating liabilities.
‘Liability’ of any kind is a thing that costs you money e.g. your mortgage, rent, bills, insurance and EMIs for car or house. If all you spend your money on is liabilities, then you are never gaining any wealth. You are simply gaining it and spending it again.
So, one of the potential ways to gain wealth is by minimizing your liabilities. When many countries are reeling under the effect of economic slowdown, need of the hour is to lower your living expenses [wherever possible].
Cut back on things you don’t need. Saving a bit here and there all adds up and you can then use that money and turn it into an asset. Start buying things in bulk to cut costs, make lunch at home and take it to work rather than buying it once you get there. Work hard, cut expenses but don’t forget to still have fun once in a while - that is what the life is all about. Cheers!!!