In the simplest form, your earnings can be divided into two categories: assets and liabilities. Assets are nothing but items that your company owns which provide you the future economic benefit.
Liabilities are nothing but what you owe other parties. In very short, assets put money in your pocket, while liabilities take money out of your pocket.
Assets vs. Liabilities
Assets which adds value to your company or business to increase your company equity, while the liabilities decreases your company’s value and equity.
If you have more assets your liabilities will be weak and it’s better for the financial health to your business. But if you find yourself in more liabilities than assets, you may be soon poor and your company might crash too soon.
Create as many assets as possible. As Warren Buffett once said “Never Depend on a Single Income Source” makes multiple incomes or sources so that your liabilities are kept too low. Which can help you live your life easier?
Examples of Assets:
- Real Estate
- Company Owned Vehicles
- Office Equipment
Examples of Liabilities:
- Mortgage Debt
- Taxes Owed
- Bank Debt
- Wages Owed
- Money Owed to Suppliers (Accounts Payable)
Now if you want to truly rich and financially independent you must build multiple streams of income ASSETS. You can build assets by investing your small portion of money into Real Estate, Stock, Bonds, and Businesses etc.
Assets will make you financially independent and as well as it will handle all of your liabilities, luxury cars, homes etc.
Now if you are working in someone office as an employee or you are a student, and you don’t have enough money to invest, try to invest knowledge in yourself, read books on investments or learn from professionals brokers, professional businessman etc. this is the greatest investment for you to understand all the things.
If you have money and want to invest in any sort of businesses well, I recommend you to never invest in any business or real estate before you have the complete knowledge of that investment. Because I myself have invested in many wrong places which gives me now good experience to research read and learn about things before I actually invest in them.
There are thousands of books written on Investment such as the book: Intelligent Investor, Rich Dad Poor Dad, Think and Grow Rich and many others. Read and learn from them.
Revenue vs. Expenses
Revenue is money which your company earns from conducting the business. If you owned an ice-create stand, for instance, revenue is what you get from customers who buy ice create.
Expenses are basically the costs you incur to generate that revenue. The ingredients you buy to make that ice cream that wages that you pay your employees monthly or the rent and utilities you pay for your stand these all expenses. To remain valuable a company’s revenue must exceed its expenses.