Difference between Asset and Liability

I was pretty much confused about these terms until I read “Rich Dad and Poor Dad”, though it has some inspirational stuff but apart from that it also has some interesting things. If you have already read this book then you must have come across these words and I hope you have the difference. No need to worry if you are still confused, just relax and breathe.


Assets and liability both have some value.. the only difference is, an asset gives you some income and increases its value as time is passed. A Liability gives you all comforts except the income and the value decreases as the time is passed.


Simply put, an asset is something that puts money in my pocket, A liability is something that takes money out of my pocket..


For instance, this is the cash flow pattern of a poor person, or a young person still at Home:
Job (provides income)-> Expenses(Taxes Food Rent Clothes Fun Transportation)
Asset (none)
Liability (none)


This is the cash flow pattern of a person in the middle class:
Job (provides income)-> Expenses(Taxes Food Mortgage Clothes Fun Transportation)
Asset (none)
Liability (Mortgage Consumer loans Credit Cards)


This is the cash flow pattern of a wealthy person:
Assets(stocks bonds notes real estate intellectual property)->income (dividends
interest rental income royalties)
Liabilities (none)


Difference is pretty much clear in the flow, if you compare the cash flow of wealthy person with others you can find the only thing is asset, which makes him wealthy. Let the asset take care of your income so start buying assets and avoid purchasing liabilities.