How To Convert Your Liabilities Into Assets

Assets are what a company owns. They add value to a business and increase your firm's equity, while liabilities are what a company owes and they decrease your company's value and equity. The more your assets outweigh your liabilities, the stronger your company's financial health. However, if your company has more liabilities than assets, then you are likely to go out of business in a short period.

In this article, I will explain how you can turn your liabilities to assets in a short period.

In our previous article, i explained to us why capital comes in liabilities side of the balance sheet.

Financial education is essential if you plan to turn your liabilities into assets. If you know what you are doing, your level of financial exposure will help and guide you to achieve financial success. 

You can't talk about turning your liabilities into assets without mentioning cashflow. Cashflow is the in and out movement of your money, it is measured by how money comes in and how it goes out (income and expenses). It's how diligent you are in taking total charge of your money.

Also Read: Difference Between Tangible Assets And Intangible Assets

Cash flow is a game changer for you, if you plan to create wealth. As a business owner or investor or salary earner, It's not how much you make that counts, what you do with what comes in and what goes out is all that matters.

Whatever is taking money from you is a liability. For instance, you own a house and often spend more funds fixing it, paying bills like electricity, water, insurance, etc then that house is a liability not an asset.

Let's look at another example, you buy a car and start spending extra money on fixing the car due to one problem or the other, paying insurance premium and all other taxes involved. The car has become a liability and at the same time destroying your finances. The vehicle is an asset if it makes more money for you. If it doesn't, then it is a liability.

Also Read: How To Prepare A Balance Sheet

Assets put money in your pocket while liabilities take money out of your pocket. The most important thing is where your cash is flowing to, is it flowing to assets or to the liabilities? Only you can tell. That is the question you really need to ask yourself and answer it honestly if you really want to fix your finances.

Your level of your financial intelligence gives you the ability to control cashflow. When you turn that car to a taxi, it starts generating cash for you on a daily basis (putting money into your pocket). The car stops being a liability because it is now a source of income unlike when the only thing it does is to take money out of your pocket.

People can either be an asset or liability. For instance, if there are people that whenever they are with you, you end up spending without having anything in return, these people are liabilities. Also, a bad advice from people around, bad advice from financial planner, a dubious person, greedy and self-centred person can weaken your cashflow and make you broke.

What you should do is to disassociate from such people since being around them will make you spend more, then save the funds you were supposed to spend when you are with them. You can buy shares, create a blog or podcast, buy a car for taxi with the money you saved. Now you just turned the liability to an asset.

How can i turn my car into an asset? A car can only be an asset if it makes money for you. As long as you online spend on the car without any returns from it it, then it's a liability. To turn it to an asset, turn the car to a taxi so you can generate extra cash from it.

If you have a paid job, you can use the car as taxi during weekends or when coming back from work, you can pick passengers with the car and get paid. Or better still, give the car to someone who would work for you and pay you daily, weekly or monthly, depending on the agreement.

People often see taking loan as a move or a sign of not living within one's means. Although loan is a liability, but when you take it for the right reason, you can turn it to an asset in a short period.

It is ok to take a loan to expand your existing business, to fund a new business because you can payback from the revenue gotten from the business. But don't take loans for what will not bring profit. Things like wedding ceremony, birthday, anniversary, etc.

How do i make my house an asset? If some empty rooms in the house you bought or built are put up for rent, it can generate steady income to take care of your personal needs, maintenance of the house and on the long run, the surplus income generated can be invest into other things that can also bring in more returns.

A child or children is a liability because you spend money to take care of their needs and as they grow, the spending increases. So, taking care of kids takes money out of your pocket. Hence, children are liabilities. 

Rich people buy assets, middle-class people buy liabilities which they think are assets, and poor people only have liabilities and expenses. To become rich, stock up your assets columns with properties that will generate more returns for you. If you want to be rich, spend your time buying assets.

Don't buy that extra car for personal use, instead, buy a bus or a car for taxi which will in return yield more profit. You can turn your car into an asset by running a taxi business with it, this way, your car will bring you daily returns.

Rent out those empty apartments in your house, the house will be a source of income and funds from the rent will be used to buy other properties. You can make your home an asset by putting it on rent if you have a big house.

Sell those clothes you haven't worn for a long time and use the proceeds to buy  assets. The clothes aren't generating any income for you and are not useful since you aren't wearing them.

In summary, your balance sheet is divided into two categories, namely: assets and liabilities. Assets are the items your company owns that can provide future economic benefit while liabilities are what you owe other parties. In short, assets put money in your pocket, and liabilities take money out of your pocket!

You now understand how to convert your liabilities into assets. Even your phone that you spend on recharge, protecting and buying data is a liability because it takes funds from you. But once you start using that phone for online businesses, making and receiving calls that brings in money, the phone becomes an asset.