Hello everyone, this is the first post on this blog. To set the context of the blog first, this website is dedicated to people who have a dream to escape what people popularly call the ‘rat race’. This website is dedicated to such people and people who wish to change the situation of their family for the better.
In this post, we are going to discuss Assets vs Liabilities. Before starting with the topic of the blog we need to understand one more small topic related to this to put the topic of the blog in context.
What is wealth?
So first of all what is wealth? Wealth simply put is the abundance of any particular desirable thing. Therefore wealth can be subjective. For someone who is not able to afford the necessities of life wealth may be an abundance of money that helps in achieving the necessities, for someone who is having health issues it may be an abundance of health, whereas, for someone who doesn’t get time off off work, it may be an abundance of time.
Classes in modern-day society
So what are these classes? Classes are groups or segments of the population that are grouped based on wealth, income, ease of access to basic amenities, lifestyle, etc.
So what are the different classes in any society? Most probably your answer would be lower, middle, and upper class. But for our discussion, we will be taking a different classification as this classification doesn’t give us the full picture as these are most of the time based on income and sometimes on wealth which is hard to measure unless it is concentrated.
So here I would like to take a different approach and classify a society not only based on income, but based on lifestyle, ease of access to amenities, freedom, and wealth. The reason is that a person might be earning the wage of a middle or lower class but might have wealth that far exceeds that of a person on a higher strata than him/her based on income. We will get into the details of this topic in future blogs.
For the time being, we are going to classify the society into 4 segments, although the uppermost strata can be further classified, 4 segments would be enough to give a very clear picture to anyone. So for our purpose, the classification would be as follows:
- The 0.1%
- The 1%
- The 10%
- Rest of the society or 90% of the society
So now we have different strata or classes of society clear for our context. So what are the things that separate these classes from each other?
Need vs Wants
Before that we need to understand two basic terms:
- Needs -> which are necessary for the proper living and survival of the person.
- Wants -> These are the things that are not necessary for the proper living or survival of a person and a lower-quality product could fulfill these needs.
If we refer to the traditional classification of Upper, middle, and lower class. The upper class is someone who has a great deal of money from income, typically much more than what is needed for just survival, that is food, clothing, and shelter. They have extra money to explore new places, buy luxuries, and build generational wealth without worrying about being doomed.
The middle class is someone who doesn’t have a great deal of money from income but has some amount of discretionary money and can meet his/her family’s survival needs. However, they don’t have so much money to explore all the new places and create very meaningful generational wealth for future generations.
The Lower class is the group of people who can barely meet their survival needs and sometimes may not meet their survival needs.
If you notice the above classification is based on income because it is hard to quantify the wealth of individuals and families. So for our discussion, we will be using lifestyle too as an indicator as it is an indicator of wealth. By lifestyle, I do not mean flashy clothes or trendy tech which most often is not an indicator of wealth, but instead the quality of everyday life, that is the quality of the necessities and luxuries people consume, the ability to tackle adversities with ease, and the ease of access to amenities, etc. These could indicate the secret wealth of an individual or family.
The 1%
So the 0.1% and 1% would fall into the Upper/elite class, concerning income, with the 0.1% being the elite among the elite. Now these people have so much money that they most probably won’t be able to use it in their whole lifetime. These people have the option to take higher risks and thus can increase their wealth at a higher rate too than the segments.
Their standard of living is generally the best in that country or society, which means the quality of food they eat, and the quality of clothes they wear are very different from the other groups. They have access to better opportunities. Their needs are easily met and they have more than enough money for their wants
The 10%.
The 10% group would be very similar to the majority of the middle class in terms of income, that is the group that has the scope to shift into the upper strata by taking some amount of risk. These people have a decent amount of money to spend on leisure as their necessities have been taken care of, which means they can easily meet their needs but don’t have a very huge amount of money for their wants.
These people have a decent amount of opportunities present for them and can afford to take low to moderate levels of risk as a big failure could turn their whole world upside down and bring them to the lower strata.
The 90%
Then the rest of the society are the people who are very similar to the people who are in the lower middle class or lower class. They can barely meet their necessities but the quality of these necessities is not as good as the 10% or 1% in terms of what falls in their boundaries of consumption, which means they might sometimes struggle to meet their needs. And to make it more harder these people have the lowest risk appetite in society among all the groups. Additionally, the opportunities present for these people are limited.
Rich vs poor
So till now, we have seen the different groups and what is the difference between these groups.
So, what separates all these groups of people from each other? The answer here is the people who tend to fall in the upper strata of society accumulate assets instead of liabilities, or at least some generation in their family would have accumulated assets instead of liabilities which has or will benefit the upcoming generation. Additionally the rich build connections and use opportunities to their fullest. Assets support an individual by increasing their net worth and providing a way to obtain credit.
So, what are assets and liabilities?
Asset by traditional definition is something that appreciates in value, while liability is something that depreciates in value. Assets increase the net worth of the individual or group by their ownership and sometimes act as collateral to obtain credit. These definitions are fine but don’t paint the whole picture of the assets and liabilities discussion. Some of the traditional and well-known asset classes in which almost everyone invests or dreams of investing are precious metals, like gold and silver, and real estate like houses or land. But apart from this there is an asset class that has increasingly become popular among the 10% because of the ease of access, and that is equity.
But the above definition of asset is not rock solid. What might be an asset for someone might be a liability for someone else. For example, a car might be a liability for someone who is using it for his personal consumption as it costs the person fuel and maintenance, while a person who is using the car for his business purpose suppose a cab business serves as an asset for him as it is putting money into his/her pocket and not only taking out money.
Therefore, a more detailed definition of an asset would be something that can either appreciate in value and provide cash flow or both. Apart from this quantitative definition assets can be considered from a qualitative aspect too, that is if something is adding value in the abstract terms too then it can be considered as an asset. For example a brand logo, a great design, etc.
So this is all for this post. Hope you liked this post, comment your thoughts below. Don’t forget to follow my Facebook and Instagram page. See you all in the next post.