Assets vs. Liabilities

Is your savings making money- or losing it?

The Heleum team is proud to be on the cutting edge of the financial technology revolution. Part of this is remembering that in a complex world of algorithms, hash functions, and blockchains, we can’t forget the basic principles of personal finance. There are fundamentals that even a high tech app can never replace.

Without a doubt, one of the greatest teachers of these fundamentals in recent decades is Robert Kiyosaki, the incredibly successful real estate investor who became a bestselling author in 1997 with the release of his popular book Rich Dad, Poor Dad. This book reveals the big secret Kiyosaki used to build his empire and how anyone can repeat his success. In his own words:

“You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is Rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability.”

The common-sense money advice we’ve all heard- stay out of debt, be thrifty, keep a budget, and save- is generally enough to stay safe and avoid problems, but it’s not enough to actually grow wealth and significantly improve your standard of living and that of those around you. The missing piece is to know the difference between assets and liabilities- and buy assets.

The Difference

So what is the difference between an asset and a liability? To put it simply, an asset is anything that puts money in your pocket, and a liability is anything that takes money out. When understood in these terms, a lot of things can be either assets or liabilities, depending on how they’re used. A new car is a liability because it takes money out of your pocket each month in the form of a car payment, and gas and maintenance continues to suck money out of your pocket even when it’s paid off. On the other hand, for an Uber driver, that same car becomes an asset if the profit exceeds these expenses. Similarly, a house with its mortgage and ongoing maintenance is a liability- unless it is rented out at a profit. Then, it’s an asset.

If you make a habit of limiting your liabilities, and instead dedicate your income to buying assets, you will be much better off financially. As Kiyosaki explains, the difference between the rich and poor is simply this: the poor buy liabilities (often luxury items that make them feel rich), while those who are truly rich put their income into assets, then buy their luxury items (liabilities) with income from those assets.

The Savings Delusion

When these basic financial principles are understood, it’s much easier to create a personal finance plan that will lead to growth- especially when this final piece is understood: just like cars and houses, your savings can be a liability rather than an asset.

With an average interest rate of .06%, savings accounts grow very slowly, and with an average inflation rate of 3.22%, the account is actually losing value- even if the balance sheet shows slowly increasing numbers.

With this in mind, saving suddenly doesn’t seem as wise as our grandparents taught us. Keeping cash in a bank account or stuffed in our mattress becomes a liability in the Rich Dad sense, and you’re much better off investing in some other asset.

This is where Heleum comes in. As a savings accelerator, the algorithm leverages the volatility of the currency market to make intelligent trades with your savings, netting gains that beat inflationary policies at their own game. While there is always risk of loss in investing, there is guaranteed loss in traditional savings strategies.

As part of a diversified portfolio, Heleum is an incredibly simple way to convert your liability savings into an asset investment.