This piece is part of my 2016–2026 archive migration. Some original formatting, content, and external links may be missing, changed, or not be optimized.
We usually do one more than the other
Here’s how you decide the difference:
Assets produce cash flow.
Liabilities destroy cash flow.
A person’s financial condition is good if their cash inflows exceed their cash outflows. If you has no job to rely on, your cash inflows would be determined solely by your assets and your cash outflows would be determined solely by your liabilities. Assets can literally be defined as as something that creates cash inflows and liabilities can be defined as something that creates cash outflows. The difference between your assets and liabilities, or cash infows and outflows, is called your net worth, or wealth. (Tom Wheelwright,CPA)
If your car is not paid off and costs you cash flow, then your car is a liability – even if your car appreciates.
I’ve never heard of a car appreciating until after a conversation I had with my mechanic. He told me his classic Toyota’s value shot through the roof, and he was able to sell the car for $1,500 over the asking price. Still, the car did not provide him with continuous cash flow.
If your house is not paid off and costs you cash flow, your house is a liability. Even if your house is paid off, it’s still a liability if it’s not creating cash flow for you.
Let’s face it, most of the sh*t we think are assets are just fancy liabilities we like to think to increase our net worth.
Here’s What The Rich Do:
Increase their passive income streams: If your passive income goes up, you get more time back – the beauty of passive income is that you don’t have to put any energy into it; the stream works on your behalf around the clock.
Invest in assets: Instead of buying more things that will depreciate or cost them cash flow, the rich invest in assets that can produce more cash flow (e.g., rental real estate, a business, or private equity).
Utilize debt: Middle, lower, and upper-class individuals are taught to steer clear of debt because DEBT IS BAD. But debt can be utilized for good if you’re careful. An example includes investing in a low-cost rental property with no money down. Not all debt is bad. Many wealthy individuals use debt to fund their business ventures that, more often than not, turn a profit and lead to long-term cash flow.
Use Debt As Tax Write-Offs: Not only is interest on savings and debt taxed differently – savings are taxed, and debt is not – the interest paid on the good debt (debt used to buy assets) is deductible. So debt can lower your taxes while savings increase your taxes (Tom Wheelwright, CPA).
I’s and B’s: The wealthy tend to be either active investors or big business owners. They often shy away from being an employee, which can severely limit their income potential.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.