Some thoughts on Assets and Liabilities…

Click here to Listen to this interview or download it to your computer!

Today’s post marks the start of a new series on the fundamentals of personal finance.  This series was inspired by the numerous emails I’m grateful to have received asking me rudimentary questions regarding personal finance.

Throughout this series, I aim to provide a fresh perspective on the universally applicable topics of debt, investing, retirement planning, and savings.

In today’s podcast, I talk with Luke Williams.  Luke is a 3rd generation real estate investor and entrepreneur.  The Williams family has successfully renovated over 130 homes collectively in the Seattle area.  As well as being a licensed real estate agent, Luke has helped launch several high-tech companies and has consistently delivered winning sales records in multiple industries.

His ability to communicate and breadth of experience has led this conversation down a lot of interesting avenues.  I hope you enjoy the post and as always, please feel free to chime in on anything you think might add to the conversation.

I’ve listed a few bullet points from our conversation below, but please be sure to check out the audio as well.

Click here to Listen to this interview or download it to your computer!

Here are a few notes from our conversation…

  • Basic Definitions of Assets and Liabilities

In our conversation, we both concluded that simplifying lofty definitions is a great way to keep your personal financial picture in perspective.  Here is what Luke defines as an asset and a liability:

Assets – anything that puts money in your pocket.

A few examples are rental income, dividends from stocks, royalties, work vehicles contributing to personal financial growth, interest-yielding retirement accounts, etc.

Liability – anything that takes money out of your pocket.

A few examples are high interest credit card debt, bloated mortgage payments, recreation vehicles, extravagant appliances, children (j/k), etc.

  • Opportunity Costs

Luke made reference to a term that really caught my attention – Opportunity Costs.  The definition according to Investopedia is, “The cost of an alternative that must be forgone in order to pursue a certain action.”

In our discussion, I brought up an example of a couple that is going to literally liquidate their entire nest egg ($120K) to purchase a home in an exclusive neighborhood in West Los Angeles.

After acquiring this property, the couple’s discretionary income (after mortgage payments and monthly expenses) is going to leave them with $300 per month vs. the $1,000 they were able to save renting an apartment in the same neighborhood.  I explained that I thought this was a poor move simply because the couple will have no liquid cash available for other investments and that they are completely on the hook for the mortgage if one of them faces illness or unemployment, etc.

Luke’s point was even more eye opening.

He said that even if the couple manages to keep their mortgage payments current, over the next 10-15 years, they would be taking a bigger loss in “opportunity costs” – inflexibility to relocate for a job promotion, lack of funds to acquire multiple assets or to pursue income-producing ventures, etc.

We went on to discuss one of the great advantages of being young – TIME.  When starting your financial education young, there is still a great deal of time and opportunity to build wealth.

Rather than racking up consumer debt or acquiring possessions that depreciate in value like cars or TVs, we can use this time to build assets and grow our net worth via 401k investments, stocks, bonds, real estate, etc.

Another point Luke added was that there is typically less financial responsibility at this stage in most people’s lives.  This is why it is incredibly important to make sure any discretionary income is used to acquire assets that will continue to yield residual income.

When discretionary income is used to pay down high interest debt or to purchase things that don’t retain long-term value, there’s no excess money to invest.  At a glance, this may not seem like a big problem, but missed opportunity compounded over an extended period of time can result in a HUGE opportunity cost.

  • The Biggest Asset you own – YOUR MIND

One key takeaway point from our conversation that struck a nerve with me is that our minds are ultimately our biggest asset or our biggest liability.  Luke and I agreed that if you continue to make an effort to grow your financial education, the better you’ll become at spotting opportunities to grow your net wealth.

I know there is a ton more that can be said on the topic of personal finance, but the goal of today’s post isn’t to be an encyclopedic reference but rather to cultivate reflection.

This was a great conversation to have been a part of, prompting me to reflect on how I spend my money and more importantly, why I’m spending it –keeping in mind the end goal of financial freedom.

What are some of your thoughts and what are you doing to acquire more assets?

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  1. Kevin says:


    Great post! I really like the honest approach to these two topics. What other topics are you thinking of covering? It would be great to get some info on paying off student loan debt. I know everyone says you should get out of debt as soon as possible, but I’ve been thinking it may not be such a good idea, especially with inflation around the corner.

    Do you have any thoughts on that?

  2. Luke Williams says:


    Thanks for your reply.

    As far as other topics, we are looking at a number of different areas of personal finance and business to cover. I am considering writing an article regarding the real value of a college education in today’s job market. Another real estate article I am writing is titled, “Why you should Buy the Worst House on your Street”. Other topics we’re considering posting about in the weeks to come include: real estate investing, commodities trading, economic trends, business strategies, etc. Let us know if you have interest in any of these particular topics.

    Now to your question about debt. There are different schools of thought on this issue and while I would never recommend as a general strategy for someone to hold onto debt arbitrarily, it is really a matter of what else you can use the money for instead of paying off the loan debt. We’re back to the discussion of opportunity cost.

    A lot of young people in particular don’t have a plan or a strategy for their financial situation and where they want to be 2, 5, 10, and 20 years from now. For that reason, if you were going to take the money and spend it on a home entertainment system or a motorcycle instead of paying off (or paying down) your student loans, I would recommend you pay off your student loans. Remember that home entertainment systems and motorcycles are depreciating items. Furthermore, the government has made student loans nearly impossible to default on. They stay with you forever until you pay them off.

    On the other hand, if you have a plan with specific financial goals outlining what you want to accomplish and you know how to invest in appreciating assets (assets that beat inflation) or assets that produce cash flow, then you’re probably better off using that money to invest wisely. The idea here being that your cash flow producing asset should pay off your student debt as well. I would refer you back to Arthur’s post entitled, “What We did with 40K”. In that article, Arthur addresses this very issue from a real estate point of view. He and his fiancé looked at whether to pay off her student loan debt or invest that money in cash flow producing real estate. In his situation, it made sense to acquire the asset instead of paying off the debt at that time. Now they have the option of paying off the debt in chunks with the cash flow coming in from the asset. Obviously, the goal is not to rack up a bunch of debt and never pay it off, but the point is that good sound assets will put you in the option position, where you have more financial choices.

  3. Kevin says:

    Luke – WOW! Thanks for the detailed response. I think you bring up some really good points. I went back and read Arthur’s article on “what we did with 40K” and I think i makes more sense to keep the debt. I only make about 60K a year. After talking to my tax consultant it turns out that I can deduct the interest, so my real interest rate is closer to 4% and with inflation calculated, I’m almost at 2%. I really think the money would be better put to work in a Real Estate investment. I don’t have a lot of knowledge, but hopefully I can get up to speed by the time I have my down payment in place.

    Also, it sounds like you have some great topics coming. I am looking forward to reading your posts. thanks!

    • Arthur Garcia says:


      Check out my recent post on books I reccomend for RE investing. That should point you in the right direction.


  4. Joshua Harris says:

    Great post! I also actively try to reach out to friends about saving and investing while were young.

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