An asset is something that serves you and a liability is something that cripples you.
An asset could be a property owned by a person or company. It is regarded as something that
- Has value
- Is available to meet debts, commitments, or legacies
From the definition and the synonyms, you should be able to see clearly that an asset is something that is beneficial.
As Robert Kiyosaki said; “Often, the more money you make the more money you spend; that’s why more money doesn’t make you rich – assets make you rich.”
A liability can mean something that is
- a hindrance
- puts an individual or group at a disadvantage
- something that someone is responsible for
- something that increases the chance of something occurring (i.e. it is a cause)
Again, the definition and synonym alone should make it clear that a liability is something that is detrimental.
Key rule: if it costs you money (cripples) it is a liability, if it makes you money (serves) it is an asset.
What about a car? Traditionally speaking, a car is a liability, unless it’s used for an income generating activity, like Uber. Mostly people buy cars to get from A to B and sometimes to impress people around them. A car depreciates in value (i.e. is worth less as time passes) and loses roughly 30% of its value when driven off the show room floor.
When Property is an Asset
Property, on the other hand, has a much better chance of appreciating in value (i.e. worth more as time goes on). In South Africa, the average price for small houses in 1995 was R120 000. In 2015 (20 years later), the average for small houses was sitting at R860 000. That’s a +/-700% appreciation over a 20-year period, meaning the property is a lot more valuable than when you first bought it for R120 000.