With increasing financial literacy, everyone is keen on investing and making more money. The concern is how right are you investing your money. Investment isn’t all that matters to compound the money. To make absolute use of the money invested, it is important to know where to invest and when to invest. The question to be asked to yourself is if your investment is helping you make more money or emptying your pocket. To understand this profoundly, knowing the difference between building assets and creating liabilities is important.
Assets put money in your pocket because you own it and Liabilities take money from your pocket because you owe it. Assets provide you economic benefit and Liabilities give you obligations in the future. You have to keep spending to maintain your liabilities, but assets pay for you.
Once invested, Assets make money work for you and help you earn passive income. This is what rich people do. They don’t work for money, money works for them.
Assets can be a business, real estate, paper assets like stocks, bonds etc. Whereas liabilities can be your expensive car, a house bought on a mortgage, expensive phone on EMI etc.
Now, the trouble is, anything can be an asset or a liability. It depends on you, how you are investing the money. If you own a house and you have excessive expenses for running the house like electricity bill, water bill, security charges etc, then it is a liability. The house is taking money out of your pocket. However, if you own a house and it brings thousands of rupee per month by renting it, then it is an asset. The house is putting money in your pocket.
While making an investment in assets with depreciating value, you should consider the inflation, future value of money invested and future value of the asset. This will help you to figure out the correct decision before investing.
One big hurdle while building assets is buying through EMIs and hence having long-term debts. Though you can immediately own the property, you owe to it, until you clear all the debts on EMI to be repaid. To avoid it, you can create a goal and save money for it. Once you have enough money, you can own the property without any long-term debts or additional charges.
With ChintaMoney, now its easy to keep track of money saved for the goal you set. All you have to do is list down the goal, the amount and the time limit. ChintaMoney will assist you in knowing your balance sheet and hence to keep track of your financial progress.