An Asset is not a Liability
The dictionary definition of an asset might be slightly [meaning totally] confusing to the average person. Also those in the financial industry have confused the “consumer” in an effort to generate money, have defined asset as the exact opposite of what it is.
Asset – 1. has economic value and can be converted to cash [ within a day or two MAX ] 2. generates income for you or appreciates in value necessarily.
That simple definition would make most consumers balk. They have indeed been fed a huge marketing scheme to sell them products that are liabilities as “assets”. Any accountant, any economist, not out to make a quick buck, but who are trying to educate, would all agree on that definition.
Now there are brokers who lock you into some ridiculous scheme that ties up your assets for years, around 6 – 8. They attach penalties if you withdraw the assets before that time. Don’t confuse those sheister schemes with the true definition of asset. Yes, if you have bought into paper that is tied up for 8 years with penalties for early withdrawal, that doesn’t mean it is not an asset. Because, it can be converted to cash immediately, and it does [hopefully] generate income for you.
Is a Home an Asset
Let’s take the biggest scam this past 50 years has ever seen. “Your home is your biggest asset”. A complete and utter lie. There is no way, anyone with an inkling of financial acumen, savvy, understanding and eduction would ever call a personal home an asset. A home is an expense pure and simple:
- property taxes
You can immediately see that just owning the home is a costly affair. Do not confuse a personal home with real estate. You can purchase real estate that is indeed an asset, i.e. rental property, commercial property. The key is that it must generate income, or necessarily appreciate. Buying a home does not generate income. You sitting in your home does not generate you income, unless you have some sweet deal with your wife and kids.
People confuse the housing bubble with income or appreciation in value and therefore it must be an asset.
- Original price of home: $50,000
- Selling price of home: $75,000
- expenses paid on house including all taxes and payments: $150,000
- value of dollar depreciation during ownership of house: 40%
Did your house actually go up? No! In fact you came out way behind. But, for some reason people don’t know how to calculate the full transaction. Houses have always depreciated. Every year houses depreciate in value, not appreciate. However, through smoke and mirrors and a complete lack of math, the average joe 6 pack thinks his house went up. Heck through the non-math formula they were selling the idea that mobil homes were appreciating. And, any fool knows that those depreciate as soon as you buy them.
In your effort to accumulate wealth then, you MUST know what an asset is. Don’t be the fool that buys the liability that bites him on the asset.