This has to be one of the most valuable lessons I’ve ever taken away from any of the financial books I’ve ever read or classes I’ve attended. Viewing your financial decisions through this new filter, or lens, will change your life. Many financial pitfalls I see are related to having liabilities that are just too large. Sure, it may seem simple enough. “Don’t spend more money than you make.” However, even this simple truth, can see people getting caught up in the rat race.
As a suggestion, each time you make a purchase, ask yourself this question. Is this purchase an Asset or a Liability?

The new lens is found within our understanding or definition of Assets and Liabilities:

Assets: Cash flows into my pocket.

Liabilities: Cash flows out of my pocket.
That’s simple enough right?

Let’s take a closer look at the most common, and yet controversial, of examples. Think about your house. Is it an asset? Is it a liability?

Put the new lens in place. Does your home put money into your pocket? Does it take money out of your pocket? AH! It’s a liability. Even though some might argue, “but I do not have any debt on my home”, there are still tax payments due, insurance payments, maintenance bills, etc.

A rental home might appear to be an asset, but it’s an asset only if the rental income exceeds all expenses related to that property.

Please don’t misunderstand the point I’m making. I believe everyone should own their home! There are many financial advantages to home ownership. If done properly, your home can become an asset in retirement and provide you with an income. But that will only happen in the future with well thought out, intentional and strategic financial planning today.

To better understand the planning and coordination that goes into a financial plan, please join me for the Strategic Allocation Tutorial Webinar later this week!