When Acquiring Liabilities Could Be A Smart Move
Everyone seems to think that having assets is much better than having liabilities. This is because you definitely want something you own and something that generates income for you than anything that takes money from you in any way.
If having anything in your possession creates a future monetary obligation for you, that thing is a liability. This is because liabilities are financial obligations you or your business owe to people, businesses or the government. Examples include wages payable, mortgages, loans and etc.
Assets refer to anything of economic value that is owned by you or your business and is expected to yield some economic value in future periods. This means you have no future cash obligations for that thing because you have paid for it in full. Therefore, your assets include; land, office equipment, software, and buildings that have been paid for in full.
In other words, whilst assets are those things you own in every sense of the word, liabilities are things you are basically having to rent. This means they both take out money from your pocket at one point in time, just that assets take it out once and puts some money back in, whilst liabilities keep taking it money over and over even if they are also putting money back into your pockets.
Although people prefer to shy away from liabilities, there are instances when liabilities are beneficial to you or to your business and they include:
#1. When your liability makes more money than it takes
This is very important. There are liabilities which actually make more money for you than they take. A good example is a productive employee. Although you have to pay this employee wages monthly or weekly, this employee makes more money for you than you ever pay him or her. Having that liability would pay you much better than not having it.
#2. When you Liability pays for it self
Some liabilities while providing an income for you, pay for the financial obligations they incur. Here’s a good example: say you have to take a loan, to acquire a building, which was charged with a 10% interest rate and then you rent it out and receive 25% profit every 6 months. The income you receive from this building can sufficiently pay for itself while giving you some profit.
Conclusion
Liabilities are not always bad news. They are sometimes useful for making considerable profit and could be a good source of income. However, remember that all liabilities can become leaden weight therefore you will need to evaluate the decision to buy or not to buy on a case by case basis.
