Assets vs liabilities

The idea is to have more assets than liabilities. An asset is something you own that generates income or increases in value. Typical assets include things like land, buildings, businesses, equipment, inventory, receivables, cash, treasury bonds, etc.

A liability is something you owe someone else and costs you money. Examples of liabilities include loans, mortgages, credit, payables, etc.

The difference between your assets and liabilities is your net worth. You increase your net worth by using your income or savings to buy assets while reducing your liabilities.

At some point, your assets will start generating enough cash to meet your expenses. At this point, you will become financially free and won’t need an active job.

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