Changing your attitude towards money and understanding how it actually works enables you to aspire to achieve your financial dreams.
Basically an asset is something of worth that you own and a liability is something that you are still paying for.
Understanding this key difference can revolutionise how you make how your money work for you.
Many people believe that their homes are assets. In most cases this is not true.
Your home is, in fact, a liability. But how can that be? Homes are regarded as sure investments.
An asset is not an asset until you own it; it is a liability when you are still paying for it. A R1 000 000 home with a 20 year bond at 8% would end up costing you just over R2 000 000!
Anyone got a spare million bucks just lying around?
Now just hope the market has appreciated the value of that home by double over the 20 years and you are just about breaking even.
If you live in your home and also hold the bond on it, it is a liability that is not working for you. To make it work you should alter your debt to equity ratio.
This is the ratio between how much of the house you own and how much you are still paying for. Overpaying on your home can save you hundreds of thousands of Rand.
Turn your liabilities into assets to achieve your dreams.
Read about three reasons to be moneysmart with your investment here.