Stop calling your house an 'asset'. Your house is a LIABILITY

March 1, 2018

 

 I don’t get why they don’t teach this shit in school.

 

There are four (4) core areas on a financial statement:

 

  • Income;

  • Expenses;

  • Assets; and

  • Liabilities.

 

They can be drawn on a diagram like so:

 

 

 

Let’s define these four terms:

 

Income: Money that enters your bank account in a given month (or day, year, etc.)

 

Examples:

  • Money you get paid for working

  • Money you get from your tenants

  • Money you take out of a vending machine you own

 

Expenses: Money that leaves your bank account in a given month

 

Examples:

  • Money you spend on rent, food, and utilities

  • Money you spend on useless stuff

  • Money you spend buying candy bars for your vending machine

 

Assets: An item, process, or system that puts money into your bank account on a monthly basis without you having to be there to do so

 

Examples:

  • Apartment buildings

  • Stocks that pay dividends (no I’m not talking about price appreciation or capital gains)

  • Websites that pay you to own them

  • Vending machines

 

 

 

Liabilities: An item, process, or system that takes money out of your bank account on a monthly basis

 

Examples:

  • Your mortgage

  • Your utility bill

  • Your car loan

 

  • Your mortgage payment on an apartment building you bought

  • Your yearly franchise fee for the McDonalds you won

Assets put money into your bank account (or income section)

 

Liabilities take money out of your bank account

 

 

Make sense? Do you understand how to read a financial statement? If so, you just became smarter than 90% of the people who work in banks and other “financial planning institutions”.

 

So now, where does your house fit in.

 

It does fit in the income nor expense rows because it’s not money.

 

Is it an asset? Well, does it put money into your bank account. No, it does not, unless you’re charging people to live in it.

 

Is it a liability? Well, there’s lots of liabilities associated with your house, such as utility contracts and property taxes.

 

Unless you're charging people to live in your house, and amount you charge per month is more than the liabilities associated with your house,

 

Your House Is NOT An Asset

Your House Is A LIABILITY!

 

“But it goes up in value!”

 

This is what broke people use as justification for putting most of their money into a house. The problem with this is the “market value” of your house is nothing more than someone else’s opinion. You can’t use the perceived increase in value of your property for anything unless you want to either sell the house (no longer your “asset”) or you take out a loan against it for the amount of the increase in value (where do loans fit on a financial statement?)

 

Please stop trying to pour all of your money into your house thinking it's a 'good' investment. Unless you're charging other people to live there, your house is hurting your finances!

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