I think this is the scariest
part of all to most people.
Who wants to do know how
much liabilities one have right? A lot of people actually think that ignorance
in this case is bliss. This is actually very far from the truth.
People who doesn't monitor their liabilities more often then not will
pay more than people who does.
For instance, if you own a
house you have to pay to the local council assessment fees twice a year and
quit rent once a year. They have fixed deadlines year in year out.
If you conveniently forgot
the deadline, you will be automatically fined. The fine may not seem much but
why do you need to pay even a single cent more than necessary?
I have a colleague once that
was slapped with late payment charges on his credit card
bill every month. It is not that he doesn't have money to pay. In fact he paid
his bill in full every month.
When I queried him about it,
he said that he simply forgot the due date. When the bank called him, only then will he make the payment. I think the
amount of late payment charges accumulated over the years can probably pay for
his family's vacation to China!
Like all unfounded fears,
you need to face it heads on before you can conquer it. It is a lot easier and much less
painful than going to a dentist you know. I’m not joking!
In Wikipedia, a liability is
defined as:
"an obligation of an entity arising from past transactions or events,
the settlement of which may result in the transfer or use of assets, provision
of services or other yielding of economic benefits in the future."
Investopedia defines it as:
"A company's legal debts or obligations that arise during the course of
business operations. Liabilities are settled over time through the transfer of
economic benefits including money, goods or services."
"Outside of accounting and finance this term simply refers to any money
or service that is currently owed to another party."
A mouthful I know. My definition of liability
is a lot simpler, anything that costs you
money to maintain.
Which means your house, your
car, your scooter, your smart phone, your iPad, your insurance, your club
membership, your hair cut, your 0% easy payment, your weekly gathering of BFFs,
your rumba class, your hamsters, your kids, your parents are all your
liabilities. The list can go on and on depending on your lifestyle.
"Whoa! Stop it right there! My parents are not my liabilities. They are
my assets." said the righteous indignantly.
Well maybe they are right. Some "kids" still ask their parents for
money even after they have kids of their own so their parents are indeed
their assets!
It is a commendable practice
for children to give money to their parents every month
once they started working. It is a sign of filial piety. Thus, in financial
term this obligation to pay is considered a liability.
Something to look forward to I suppose. Your kids once they started working could
potentially be your assets but I won't hold my breath
if I
were you!
Homework: List down all your liabilities in Excel
spreadsheet. It may take some time so take a week at least to compile. Think
about it deep and hard. This is very important so
make sure you got it all.
Don't bother to tag monetary
values to it yet. If you do that, you would probably stop before you even
start. Do that later after you have calmed your nerves.
This list will be part of
your Net Worth Statement and Cash Flow Planning (refer to Chapter 7).
“Do one thing every day that scares you.”
- Eleanor Roosevelt
“You gain strength, courage and confidence by every
experience in which you really stop to look fear in the face. You are able to
say to yourself, 'I have lived through this horror. I can take the next thing
that comes along.' You must do the thing you think you cannot do.”
- Eleanor Roosevelt