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Liabilities and the rule of minimization!

YOU would observe that nowadays, I am deviating a bit from my favourite topics like - maximization of returns, continuous growth in savings & investment, magic of compounding and many more topics of similar nature.

Last week also I talked about 'what not to do with your money' which again was a deviation from my traditional approach on money matters.But if we talk only one side of the story, often there are chances that we may not achieve the goal of "financial independence".

Thus it is utmost important that we understand money matters in totality and not just one side of the coin. In one of the Bollywood movies an actor who was playing the role of a Don (who is mainly known for his anti-social activities) was trying to reform himself by following the non-violence path of Mahatma Gandhi.

In the movie, once somebody slapped the Don on one of his cheeks and he immediately turned his other cheek to be slapped (because this is what the teachings of Mahatma Gandhi on non-violence were). But when he was slapped on the other cheek also, the Don hit back the man brutally by saying that in this situation (i.e. when you are slapped on both the cheeks) the Mahatma did not advise him what to do!! So from a non-violent person, the Don immediately turned into a violent person, because he knew only half of the story on non-violence.

Thus moral of the story is - while on money matters we must comprehend both sides of the story i.e. study factors which have positive as well as negative effects on our money. During my previous articles I had talked a lot on maximization of wealth, but without limiting your liabilities you can't achieve 'wealth maximization' in real sense. Individually, each human being has his/her own sets of 'Assets' and 'Liabilities'. While on asset side we always strive hard to maximize our assets but in the same vein we must also work towards minimization of our liabilities.

In simple terms "liability" means something that is a hindrance or puts an individual or group at a disadvantage, or something that someone is responsible for, or something that increases the chance of something occurring (i.e. it is a cause). Now let me ask you a simple question - anything which puts an individual or group at a disadvantageous position - is it good or bad? I know this does not require any analysis on our part, as it is crystal clear that anything which poses hindrance or puts us on a disadvantageous position must be controlled at all cost.

This is what the 'rule of minimization' advocates when it is the case of 'liability'. Anything in moderation is OK and this applies to liability also, but the problem starts when instead of controlling liabilities we allow it to increase or escalate up to a level when it becomes unmanageable. Your 'liabilities' are all the amounts of money that you owe to other people or lending institutions. And we know it very well what can happen to us if we dare to default on one of our liabilities.

So the best way to avoid any trouble which liabilities can bring forth is - as far as possible avoid creating unnecessary liabilities and if you had already created few of them then work hard to minimize. When you consistently work on minimization of your liabilities, then slowly & steadily a day will come when you have no liabilities to attend.    
    
Remember, money is an important factor for our daily living. It is essential to acquire food, shelter, clothes, and other necessities of day to day life. Because of this, having savings and investment is a head start in having a financially stable future. In addition to this, there are many things that can be done to make money. A great way to make money is to always invest in assets rather than liabilities.

'Liability' of any kind is a thing that costs you money e.g. your mortgage, rent, bills, insurance and EMIs for car or house. If all you spend your money on is liabilities, then you are never gaining any wealth. You are simply gaining it and spending it again. So, one of the potential ways to gain wealth is by minimizing your liabilities.

When the whole world is reeling under the effect of economic slowdown, need of the hour is to lower your living expenses (wherever possible). Cut back on things you don’t need. Saving a bit here and there all adds up and you can then use that money and turn it into an asset. Start buying things in bulk to cut costs, make lunch at home and take it to work rather than buying it once you get there. Work hard, cut expenses but don’t forget to still have fun once in a while - that is what the life is all about!!!