My House is My Biggest Asset, Or is it?
Your house is not your asset
We are taught from a very young age that we are supposed to go to a good school and get a great education and get a good paying stable secure job. Then when you are all set in your career, you go out and buy a house and car or two. You are living the dream. Then you rely on your house as your biggest asset to create equity for you so that you can buy a bigger house later and maybe some more toys. I hate to tell you this, but this is a lie. I see it a little differently, and you may not like what I have to say. But here goes.
Your house is your biggest liability
I say this with great conviction. Notice the bold face around liability. Let me explain.
First lets define what an asset is. I mean really what it is.
An asset puts money in your pocket each and every month.
What!!!
Its that simple.
But what about stocks you ask. These are assets right? Not unless they pay you to own them.
If you looked at your own balance sheet. ( Its ok if you don’t have one )
You would see 4 things of importance.
Income, Expenses, Assets and Liabilities.
In your income section you would have your JOB and list your salary there.
In your expenses section you would put things that you need to pay each month like, gas, water, electricity, phone, etc.
In your assets section you would have things like a money market fund, or dividend paying stocks, or anything else that puts money in your pocket regularly.
In your liabilties section you would put your mortgage, and credit cards and other debts.
Now lets look at the banks balance sheet.
They have the same items ( income, expenses, assets, liabililties )
Only on there balance sheet is YOUR homes mortage in there asset column, why is this. it is because your house is there asset. It puts money in there pocket each and every month.
Doesn’t seem fair.
So what you need to understand is how balance sheets work. And when you look to increase your assets, you much understand what an asset is.
Remember to say to yourself, will it put money in my pocket each month?
If it will, then it is an asset.
Although some people are very successful in buying a house and then living in it for a while, and fixing it up and selling it later for more than they paid. Until the money is realized at sale. Your house is still a liability to you. And an asset for the bank that holds the mortgage.
