E471 | Assets and Liabilities

In today's episode, I do a visual representation of assets and liabilities. If you want to see the visual side of this, I posted this video in our free Facebook group, The P.T. Entrepreneurs. Very few people truly understand the difference between what is considered an asset, and what is considered a liability. People assume they know, but they can often be wrong. I try to clear that up as best I can in this episode. Enjoy!

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Podcast Transcript

Danny: So one of the best ways to improve your customer experience, which we know will dramatically improve your business, is to have clear lines of communication with your clients. And that's something that can be really hard with these multiple channels between email and text. And what you really need is to centralize that in one place.

And that's something that we've been able to do as we switched over to PT everywhere within our client's accounts. We can actually message right back and forth with them. They can manage their home exercise plan within there, and it allows us to really compartmentalize the communi. That we have with those clients, instead of losing an email in the inbox or missing a text and then you're, it's very hard to dig yourself outta that hole because they feel like you're not very responsive, with them.

And for us, it's made a really big difference. It helps make our staff more efficient. It helps us not miss things as much with the volume of people that we're working with. And it's a really smart way of really compartmentalizing your communication with your clients so it doesn't interfere with the rest of the channels.

You have communication with family and friends and things like that, so I think it'd be huge for your practice to centralize it the way we have. Head over to pt everywhere.com. Check out what our friends we're doing over there. I think it's really cool and I think you really like it. So here's the question.

How do physical therapists like us who don't wanna see 30 patients a day, who don't wanna work home health and have real student loans create a career and life for ourselves that we've always dreamed about? This is the question, and this podcast is the answer. My name's Danny Mate, and welcome to the PT Entrepreneur Podcast.

What's going on guys? Doc Danny here with a PT Entrepreneur podcast, and today I'm gonna, I'm testing something out. I was given a iPad for Christmas and I thought it'd be cool to be able to draw some some concepts out. And I'm so bad with technology that I've, I think I've finally figured out how to do it.

So if you're listening to this on the podcast I'm going to take this video and put it in the PT Entrepreneur's Facebook group. So you can see the, visual side of this. But what I wanted to do was talk about. Assets and liabilities. And this a simple concept that I think can be incredibly important for people to understand, really anybody to understand.

And I think very few people truly look at assets and liabilities through this lens. And this really comes off a conversation I had with my kids about money, about what it is, what it's used for. And how to have a healthy respect for that and effectively, be able to use money.

They have, they have like little piggy banks and stuff like that. They get money for little chores sometimes and birthdays and Christmas and stuff. And I think overall for kids, like they're, I think they're pretty solid with with what they do. They're pretty good with delayed gratification, which I think is a good sign with money in particular.

But we had a conversation about assets and liabilities because Ashley and I have just bought our commercial space that we're buying as a, as an investment. And our kids see that and they're like, oh, cool. This is like a second house, right? It was, it's not really a house, it's three units.

One's a commercial space and then there's two residential units that are, it's a three story buildings. They're stacked up on top of each other and. So I had a conversation with them about assets and liabilities, and I drew this out and I think that, hopefully this will be helpful for you too.

Here's what I'm gonna do. I'm gonna share my screen real quick. And then hopefully this works and you guys can see what I'm drawing. The simplest way that I like to think about an asset and liability, we can look at this in terms of of houses, right? So let's say we have this, essentially this house that we're buying as an investment, right?

And then let's say we have a house that we live in, and most people think of this as. As an investment, as a as an asset. And I think you can make a case for either one, but I'm gonna make a case for the fact that it's a liability in comparison. Simple numbers, let's say that this is the asset category and this is liability.

So in the asset category, we have a building, and let's say these are both equivalent in price. And equi equivalent in carry cost, right? Let's just say it's for simple numbers. Let's say that each of these costs us $400 a month

to actually own. So each of these houses, let's say it's $400 a month. Now the asset, the investment because let's say of these three levels that are. Each one generates $200 a month. So we're making 600 off of that property, which would give us a net of $200. The house that you live in, you pay $400 to live there.

And it doesn't generate any additional cash flow each month. Now, does it appreciate in value, hopefully, but so will the other asset that you are getting cash flow off of. So the liability, a liability is something that decreases income or decreases cash in your account, in your, bank, in your, whatever your net worth each month.

Anything that costs you. Each month isn't technically a liability. Anything that gets you more money each month would be classified as an asset. So in this scenario, one is an asset, one is a liability. They cost the same. One generates income and the other one. Is it's used for where you live, which is important.

You need that. Definitely better to buy the house than to rent it, in my opinion. Unless, you know you're gonna be moving in a relatively short period of time. But it's not necessarily a liability or it's not necessarily an asset. Your house is a liability in this context. Super simple. Right?

So what other things could you lump into that? This is no different than if you had a vehicle. So let's say we had a car, right? And I'm not gonna draw that out cause I can't draw for shit. I'm gonna draw a. For a car. All right, so let's say we have these cars, all right? And this car, even if it's paid off, is still gonna be a liability, cuz number one, it's gonna go down in value.

I guess unless used cars have gone up in value recently, which is weird, but it's gonna depreciate, it's gonna require maintenance, it's gonna require gas, it's gonna require things to keep. To keep it going, so you're gonna have to pay money for that. So let's say it's like a minus, $100 per month if you own it outright to actually have that vehicle.

So that's a liability. Now if you have a vehicle and you rent it out, let's say you use like Turro or something like that, and let's say it costs you a hundred dollars a month to maintain it. So you're saying $100 a month that you're paying for the vehicle when you have it yourself, but you're plus 200 in rental fees.

Now all of a sudden this turns into an asset. It generates a hundred dollars a month for you. So you can take both these scenarios where something is both a liability and an asset. And you can you can make one in either category depending on how you use that. Now the key here is this asset.

Equals more money. Okay, more money each month. Now there might fluctuate a little bit, especially let's say you have a rental property and you have to change out a water heater or something like that. That could eat into that to some degree, but it should be something that generates more money for you and in particular, if there's multiple ways in which that happens.

So if you have cash flow, which is great. It pays you more money than it costs for you to actually. As a cash flowing asset. You also have things like appreciation, things like debt pay down if you're buying a property because other people are paying basically for the interest and paying towards the principle, what you're actually keeping on the property every single month.

So you have that. You also have. Depreciation, which is a tax advantage for being able to depreciate equipment or the physical property itself, which helps with the income earned as far as being taxed, which is a whole nother conversation of how this works. But I think this key concept that people really need to understand is the fact that an asset gets you more money per month and a liability costs you more money.

So what you wanna do let's say this is your job, right? So your job generates money. Every month you have money, you have living expenses, you have things that you know you have to pay for. But the real difference maker, from what I've seen, are people that generate financial freedom. All right, so we'll just call this Double F.

Financial freedom is they save more of the money they make, and then they put that into assets. And not liabilities over a long period of time. It's super boring. It's this, it's nothing that anybody is gonna make a cool video about necessarily, but it's legitimately the way that in which you can create financial freedom.

In many cases no matter how much money you really make, as long as you have a decent income, you can start to work towards this. Obviously if you're making minimum wage is really hard. In that context, you need to look at the asset of yourself, the asset of like, how can you. Get a better position.

What can you work towards? Can you become a manager? Can you like take on loans to go back to school and get a better paying job? Can you learn a new skill? These things that you're like investing in yourself with, because you're essentially an asset as well. You're probably the most important asset.

Your brain, your physical capacity, your ability to, connect and have networks and produce value for other people is a massive asset, which leads to better income potential, which means. More opportunity to invest in assets outside. Your direct income, which then turn in turns into passive income and generates net worth over a long period of time.

This is the game. This is how people get out of the rat race, how people get out of debt, how people are able to put themselves in a position where they work because they want to, not because they have to, and they're not freaking out because they have a thousand dollars vehicle, whatever maintenance expense that popped up or some sort of emergency because they've put themselves in a place where they have solid financial.

Foundation of where they're at. And again, most people do not actually keep this in mind. The fact that liabilities take money out of your account every single month. Assets add money to your account every single month in particular without you doing direct work. So I hope that helps, hope this video actually works out.

And I hope that the audio is clear enough to without seeing the visual that it makes sense and I, and. I really wish that more people knew this. I'm teaching my kids this at a very early age. My daughter's eight, my son is 10. And they can do the math on this stuff. Like they're literally in elementary school.

I helped my son with some math homework yesterday, and he's just learning about like dollars and what it, what you, it was basically a scenario about buying helmets and bats for a baseball team, but he had to be able to like multiply. Subtract and divide these dollar values, which is essentially all you need to understand.

Unless you're an engineer or you're, coding some sort of, I don't know, computer science language that has a lot of math involved, like I should think I was really bad at math. Like I was actually told, I had a an honors math class. The only honors class I've ever taken in my entire.

And I don't know how I got into it. I think it was an accident. It was in high school. And the math teacher, I was failing. I was failing the math class. Wasn't failing. I think I had a d and she told me one day after class, she goes, you're the worst. Honors math student I've ever had. And I think she thought that I was just being lazy.

Like I wasn't trying and I was actually trying really hard because if I didn't give crap about math. I just, if I didn't get at least a b I wasn't allowed to play sports. So I was like really trying hard and I eventually had to transfer out of this class because I just wasn't good enough at it to be able to.

To get a B. So I transferred to a statistics class or something like that. I remember her telling me this. She said, you're the worst honor student I've ever had, or worst math honor student I've ever had in my life. Which that sucks. I should have been there in first place, but I thought I was bad at math.

I had people tell me that I just, I avoided math because of it. And I use math all the time, but I use math that. Applicable to real like life situations, not, algebraic made up languages. And it's something everybody can do and understand and start to apply this in a way that leads to what builds true financial freedom, which is understanding the basic difference between assets and liabilities.

Improving your skillsets, your capacity to earn and taking that additional revenue, in particular, the additional income, lemme put it that way and caveat, the biggest mistake I see is when people do increase their skillset, they increase their their sort of like living expenses. They increase their life expansion and they take on more.

They take on more debt. They take on more burdens of things that they do in life, and they do what's called move the goalpost. So they go from making $80,000 to $150,000, but instead of, when they're making 80, they were spending 60, they go from making 80 to making 150, and now they're spending 130 on their.

And they're in the same place financially in terms of what they have left over to actually put into assets. They're gonna offset their income over a period of time and create true financial freedom. So the biggest thing you can do as you improve your skillsets, your earning capacity. That's number one.

Not move the goalpost. Don't change your life that much. It's totally fine to be able do cool shit that you wanna do with your family as you've earned the right to do so by making more money. But keep in mind that if you push the goalpost forward too much, like you're just in the same place.

And now you have to work even harder to maintain that lifestyle. They call it the golden handcuffs. It's a huge problem. I see. And I think for most people, if they can keep that concept in mind, improve themself, start to make better income, and then remember to put that into assets, into things that are actually going to appreciate and value that then in particular, or some tax advantages and produce income for you that's greater than whatever the cost is to that.

That is the key. This, again, this could be many different things in how you use it. Obviously real estate's a really simple example. Businesses are a really good example. Anything that's gonna be paying any sort of like residual, this could be like dividend paying stocks. This could be anything that's gonna have some sort of pa passivity to it that's going to be an asset that accumulates more income or gives you more income than it takes out.

That's what you want. Cuz that's gonna snowball and that's gonna essentially equate to your actual income. So when. Passive or non-active income equals your active income. You have now hit in the simplest terms, financial freedom. You are even, you don't necessarily have to work anymore. You get to work cuz you want to work.

You don't work because you have to work. Now you might. You might want to work so you can have a a higher quality of life, but you put yourself in a place where a lot of the pressure is off and it's incredibly healthy place to be mentally, but also knowing there's some security in place for your family is just a really, it's a great place to eventually try to get to.

And I think this core concept, if people can understand it, and hopefully this makes sense and it can be applied in a way. You can start to do this in your own life relatively quickly. I think it's a game changer. And so I, anyway, this is something that I'm teaching my kids now, at a young age.

Wish I wish there was something someone would've taught me at a really young age. I didn't know. My parents probably don't know this either. Like they, maybe they do but it's not like it was something that we sat down at the dinner table and go over scenarios, right? This just so happens that we're actually, Buying a commercial unit and my kids are asking me about it.

They're like, oh, is this, what is this? Is this like a sec is like a vacation home or whatever. They're like, no, dude. This is an investment. This is how it works. And explaining it to them and even an eight year old is oh yeah, we're gonna make more money than it costs. Sounds like a good investment.

Cool. It's fat simple. It doesn't have to be that hard. So hopefully this helps guys. Thanks so much for for listening. Like I said, I'm gonna drop this in the Facebook group so you can see the video of it. And if you like stuff like this, more of these walkthroughs, hopefully this went well.

I'll try to do some more of these so we can get more visuals. So anyway, thanks so much. Talk to you soon.

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