Assets & Liabilities

As we mentioned in the "Getting Comfortable With Money" section, the two numbers you need to be most aware of are what is going out and what is coming in.

Once you have painted that picture, the next biggest items to be aware of in your finances are your assets and liabilities.

• Assets - these put money into your account

• Liabilities - these take money out of your account

Liabilities

Start with liabilities first as you need to understand what things are regularly taking money from you each month or reducing your net worth. Liabilities include, but are not limited to:

• Mortgage/Rent

• Car loan payments

• The car itself as they generally go down in value

• Student Loan payments

• Credit Card debt repayments

• Any other loans (personal, payday etc.)

• Interest on loans

• Insurance (car, home, pet)

• Monthly bills (gas, electric, phone, internet, water)

• Tax (car, council, capital gains, VAT, NI, income)

As you can see, liabilities can add up quickly and having too many liabilities means you're forever paying money to people or companies, making them richer instead of you.

Remember, the borrower is a slave to the lender.

So it is in your best interest to minimise liabilities where possible so that you can have more financial attention on things that put money into your account.

Assets

Apart from you being your greatest asset (so cliché!), you have a few financial instruments that you can use to help put more money into your account and grow your net worth. Some examples include, but are not limited to:

• Stocks & Shares

• Dividends & Exchange Traded Funds

• Real Estate

• Interest bearing accounts (savings, General Investment Accounts)

• Bonds & Mutual Funds

• Digital assets like Bitcoin

• Your own business that sells products/services

• Pensions

• Commodities (oil, gold, silver)

The important point to be wary of is that these assets can also go down in value so understanding your own risk tolerance, managing that risk and having a well-researched and informed approach to investing will put you in good stead.

Having said that, if you can eliminate some liabilities, you will have given yourself an immediate pay rise, which is not to be sniffed at!

Balance Sheet

Now you know what liabilities and assets are, the next step is to list which ones you have.

This is called a balance sheet, which is a summary or list of all your liabilities in one column and your assets in another column. When you subtract all the liabilities from your assets, the final sum is your net worth.

A balance sheet is a snapshot of your current financial situation and it is a useful exercise to see how you are progressing towards your goals.

This is why it's important to have clear SMART goals that you can measure and move towards, whether it's reducing liabilities or having a certain amount of a specific asset by a certain date.