Understand These 2 Words to Begin Your Financial Freedom Journey: Assets and Liabilities

Financial Literacy

The Difference Between Assets and Liabilities

Assets and liabilities are the two words can literally change your financial life. No exaggeration. They are the foundation of financial independence.

Here’s the simplest definition that made it all click for me:

That’s it. No spreadsheets, no MBA required.

🟢 What Counts as an Asset?

Assets are anything that generates ongoing income or gains value over time:

• A rental property that pays you monthly rent

• Stocks or index funds that earn dividends

• A business you own that runs without your daily involvement

• Royalties from books, courses, or intellectual property

• Even a savings account that generates meaningful interest

These things work for you—even when you're not working. That’s your dream, right?

🔴 What Counts as a Liability?

Liabilities, on the other hand, are expenses that drain your money, even if they look good on paper:

• The house you live in (yes—even paid off, it comes with taxes, maintenance, and opportunity costs)

• A car, which needs gas, insurance, repairs, and loses value daily

• Credit card balances (interest compounds silently and fast)

• Student loans

• Lifestyle expenses, gadgets, upgrades, or luxuries that don’t generate income

This is where most people get tripped up.

We tell ourselves we’re “investing”... But really? We’re spending.

Here’s what that looks like:

❌ A house you live in — “it’ll appreciate!” (But until you sell it, it costs you money every month.)

❌ A brand new car — “I need it for work!” (Meanwhile, it quietly drains your wallet: gas, insurance, maintenance.)

❌ A fancy laptop or online course — “it’s an investment in myself!” (But if it never makes you money, it’s just expensive self-help.)

Now don’t get me wrong — there’s nothing wrong with nice things. Just don’t call them assets.

The Rule: If it doesn’t put money in your pocket — now or in the future — it’s a liability. Period.

The Wealth Formula: Buy Assets, not Liabilities.

Sounds simple, right? Then why aren’t more people doing it?

 It’s all about mindset.

• Poor people chase income.

• Middle-class people chase savings.

• Wealthy people? They buy assets that make money while they sleep.

So ask yourself: Which mindset are you operating from?

Because here's the truth: Assets are the only way to stop trading time for money.

📈 Own a rental that pays you $500/month? That’s $500 whether you're in the lab, lecturing, or lying on a beach.

Assets = time, options, freedom. Every asset you build brings you one step closer to financial independence.

What About Your Salary? Can You Become Financially Independent With it?

Let me be clear: your salary is a powerful tool. It’s the fuel you use to buy assets. It’s your launchpad.

But your salary alone won’t make you wealthy — especially if your lifestyle grows with it.

That’s what lifestyle inflation does: the moment we get a raise, we upgrade our housing, our vacations, our phone and we we found ourselves eating at restaurants more. And that’s when liabilities quietly take over.

You want to build a life where your assets pay for your lifestyle, not your job.

By the Numbers: The $200 Experiment

You like experiments, so let’s do a quick one here.

Let’s say you have $200/month. You can either:

🟢 Invest it in assets (7% annual return): After 25 years = ~$300,000

🔴 Spend it on lifestyle upgrades (new phone, dinners out, etc): After 25 years = $0 (Actually worse than zero… because you also lost all that growth potential.)

That’s the difference between wealth and wasted!! And with better returns or more time? That $300K could easily be $600K+.

One choice builds your future. The other just funds your weekend.

 It’s not about deprivation. It’s about direction.

Your Action This Week: The 15-Minute Asset Audit

Here’s how to start:

List your last 10 purchases over $50.

1. For each, ask: “Does this put money in my pocket month after month?”

2. Label them clearly: Asset or Liability according to the previous question (no shame, just data)

💡 As researchers, we’re good at spotting patterns. This exercise helps you see the financial pattern you’re living. Whether you are prioritizing assets or liabilities

The Academic Advantage

Until next time