The Difference Between Assets and Liabilities

We all assume that having things is the same thing as having wealth. You see someone driving a Mercedes, and assume he or she is wealthy. More often than not, it just means that person has a huge loan payment to make each month. Cash flow is not the same thing as wealth. Wealth means having assets — money in the bank, valuable investments, and things unencumbered by loans. If you owe money on all your things, you just have liabilities.

You can have a lot of things and still own nothing. Like the founder of Michigan Brewing Co., who just filed bankruptcy and listed $3,236 in assets and more than $8,200,000 in liabilities.

Very few people are truly wealthy. You cannot judge a book by its cover, and you cannot judge wealth by the number of things someone has. (via Daniel Gershburg)