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Is Your House an Asset or a Liability?

Is a House an Asset or Liability?

Source: https://Streetinfo.com


I was asked, awhile ago, whether a house is an asset or a liability. This might seem like an odd question. Of course your home is an asset, right? Well, that all depends on who you ask and what your definition of an asset or liability is.

We often hear phrases like, “A house is typically your most expensive asset in life.” Of course, these people mean that out of everything you buy in your life, your house is more than likely the most expensive. So, sure, a home (or condo) is an expense. Your mortgage is an expense. But an expense can be an asset, as we discussed in the related post: Is Your Car an Asset or a Liability?



When Asked “Is a House an Asset or a Liability”, Normal People Vote Asset

If you walked up to your neighbor and asked them if their house is an asset or not, they would look at you funny and say, “Of course it’s an asset – .” It’s true. If you had the option to rent an apartment or buy a house, it is probably wiser to buy the house. Sure, you’ll have to make improvements once in a while, but typically your house will gain value through the years and may even earn you more than the rate of inflation. This is why for most people a house is most definitely considered an asset.

Use Your Business Mind

If you had to make a guess, what would you say the definition of an asset is in the business world? Well, let’s step back for a minute. What is the number one goal of any business? It’s to make money. If they didn’t make money, then there would be no business, which makes it pretty apparent that it’s the top goal out of everything else. So, if your goal is to make money and your business was in producing bicycle frames, your number one asset would be those machines that are used to produce the product right? Right.

Why are those machines considered to be an asset to the business? Well, they are an asset because they are directly helping the company make money, which is their number one goal. Without them, the company would be sunk. So, let’s step back in again. What is the definition of an asset in the business world? It’s any tangible object within the company that has value and that helps the company make money.

Is Your House an Asset or a Liability?

So what do you think? Is your house still an asset? From a business standpoint, the answer is absolutely not. What does your house do for you? It constantly costs you money in repairs – the water heater, the landscaping, the roof, and let’s not forget the plumbing – all of these things cost you money each and every year, but what kind of cash flow do you see from your house? Sorry to tell you, but there is none. Your house is a place for you to live, but it is not a money-making machine and should not be thought of as one. If you want to get ahead in life, I would purchases houses to rent out to others – turning a house into an asset. Suddenly, that property is earning you an income each month and can be valued as an asset and an investment.

Interested in growing your assets and your net worth? Check out these other great articles.

Are you really aware of an asset meaning?
Is Your Car an Asset or a Liability?
4 Ways To Improve Your Net Worth

Additional Reading

Incidentally, if you are interested in learning how distinguishing between assets and liabilities can make you rich, I recommend that you pick up a copy of Robert Kiyosaki’s Rich Dad Poor Dad. The book is insanely popular and has helped hundreds of thousands of people to make better decisions about their finances.

Do you consider your house an asset or a liability?

This post was written by Derek from Life and My Finances. Stay in the know with updates from all of our contributors by subscribing to our RSS Feed

Don’t Spend Money Because You Have It

There’s something in our nature that just gives us a rush when we spend money. We see something in that store window and we feel like we just have to have it. Maybe it’s a pair of shoes or a brand new TV. Whatever it is, our palms just get all sweaty and our eyes almost bulge out of our head. In a moment we’ll be reaching for our credit card to make that spontaneous purchase. We’ll feel good about it for about 2 hours and then we’ll get sick to our stomach because we realize that we’ve just made a huge mistake. Instead of admitting we were wrong, we just hold onto the purchase and try to enjoy it, but much of the time it was absolutely not worth it.

spending money because you have it

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Our Desire to Spend Money

There are others of us though, that don’t like to reach for our credit card. We are 100% cash people, and we feel high and mighty because of it. We don’t always admit it, but when we hear about someone making a $500 car payment each month, we subtly shake our heads and think about how wrong their thinking is. “They should just buy a less expensive car and pay with cash,” we think to ourselves.

You know what though? You aren’t perfect either. I bet that you have a number where you automatically head out and spend money. What do I mean by this? I mean that each one of us that likes to stockpile money into our savings account typically has a certain value where we feel like we have a lot of money, and then we suddenly feel like we “need” to buy something. We might look out at our car and realize that it’s not looking too great these days so maybe it’s time for a newer used one.

For some of us, this amount is $1,000. For others, it could be $10,000. Whatever your number is though, you really need to change your mentality otherwise you’re almost as bad as the spontaneous spender that pulls out their credit card. You might think that last statement is ludicrous, but think about it. You’re making the same dumb purchase, you’re just doing it with $10,000 more in the bank. So, throughout your entire life you’re only $10,000 ahead of those that people that you think are absolute idiots.

What to Do Instead of Blowing Cash

Instead of running out and buying a fairly expensive car just because you have the money to do so, it would be wiser for you to delay gratification and instead of using that money to go out and buy a depreciating asset, you would invest it. If you approach your purchases in this way, you’ll still have decently nice things today as you need them, but in the future you can live in a way like you’ve never experienced before! You won’t just be $10,000 ahead of your spend-happy friend, you’ll be millions ahead. Trust me. When you start making money with money, it can grow at an alarming rate.

Do you spend money because you have it? How do you avoid spending when money is burning a hole in your pocket?

My Favorite Vacation Memory (& A Giveaway!)

When I was sixteen, my mom announced that we were going to Mexico.

I was ecstatic. We’d taken some short vacations around our province and to the USA, but I didn’t remember the USA vacations because I was too young. This would be my first trip that I could actually remember outside of the country.

Some family friends were going to Mexico for a wedding, and we could get in on the group rate. We eagerly opted in and my mom and I went to Mexico.

I loved it because I could get away from high school drama. I played in the sand and fell asleep in the sun and even flirted with a cute boy in our party.

I had two glasses of wine, my first time drinking, which made me giggly and giddy. We ate delicious, off resort Mexican food in a little village forty minutes from our resort and saw stray dogs in the street.

Vacationing and travelling are two very separate things to me, so my favourite vacation to this day is my Mexico trip when I was 16.

In conjunction with many other bloggers, we’re giving away some cash to go toward your next vacation! If you won, where would you go?

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