| "Your greatest asset is your earning ability, your | | | | term though, the house you live in (and the car |
| greatest resource is your time," quote attributed | | | | that you drive) is really a liability as it takes away |
| to American Television Host, Brian Tracy; if this | | | | from your income with no short term returns. |
| quote is true, then it means, we all have what it | | | | A person's net worth is thus computed from the |
| takes to increase our net worth (by compounding | | | | difference between one's asset and liability - if all |
| our assets and annihilate our liabilities). But what | | | | of one's assets are sold and the cash generated |
| are these personal assets and liabilities from | | | | used to pay off one's liabilities (debts, obligations) |
| financial point of view? and how do they | | | | what is left is the person's net worth. This means, |
| contribute to one's personal net-worth? | | | | it is possible to have negative net-worth, i.e. when |
| If you apply for an unsecured loan from any | | | | total value of assets is less than total liabilities. |
| responsible lender, they will run through some | | | | Forbes (Nov, 2009, website) published that Bill |
| personal questions to establish your credit | | | | Gates, net-worth estimated to be US $22bn, has |
| worthiness i.e. ability to service the loan | | | | regained his title as the world richest man, |
| repayment by going through your income and | | | | overtaking Warren Buffet whose net worth was |
| expenditure, establishing whether your personal | | | | estimated to be US $12bn (both affected by |
| finances run on deficit or surplus. If you apply for | | | | recent recession, Gates lost $18bn whilst Buffet |
| a secured loan, your financier would want to | | | | lost $25bn). These two billionaires had their net |
| know not only your credit worthiness but also | | | | worth decreased drastically by decrease in their |
| your net worth as well by establishing your assets | | | | assets. Another way of decreasing one's |
| and liabilities. | | | | net-worth is by increasing one's liabilities. |
| An asset is anything owned by an individual (or | | | | I did a quick survey of twelve adults I know |
| organization) that can (potential to) generate | | | | socially and it turn out none of them knew their |
| income, in other words it is anything that has | | | | net worth and only 3 out of 12 (25%) knew what |
| economic value which could be converted to cash; | | | | net-worth was and how it is computed from |
| for instance a car, property, 'skills', cash, securities, | | | | one's financial data (information). This is sad |
| bonds, etc | | | | because a person's net worth is the greatest |
| Liability on the other hand is anything that which | | | | leverage (financial muscle) that one can have and |
| takes cash from an individual, for instance a loan, | | | | use in the financial arena. |
| mortgage, store cards, credit cards etc. Liability is | | | | I think it is worth to say that on a non-financial |
| also defined as an obligation that binds an individual | | | | level there are things and people who are assets |
| (or organization) to settle a debt. | | | | and others liabilities. People (friends, family, |
| Most people think of their houses (bought on | | | | acquaintances), skills, knowledge etc which adds |
| mortgage as primary domicile property) is an | | | | joy, peace, understanding, courage, wisdom and |
| asset. Strictly speaking, it is only an asset in a long | | | | insight for you to be and do more in life are 'rare |
| term (assuming that in the long term the | | | | and an asset' to you. Otherwise same lots can |
| property value will increase-we've all witnessed in | | | | become a liability... if you want to be a success in |
| the recent recession, house values have gone into | | | | life, you must distinguish and extinguish any |
| negative equity i.e. purchase value being greater | | | | relationship and personal habits which is a liability to |
| than current property market value). In a short | | | | you. |