Foreword
The term Liability has been well-explained by various websites such as Wikipedia, Investopedia, etc. However, I find that those articles have made the whole thing complicated. This brief article is written to provide the easiest way for you to understand what is Liability.
What is Liability?
Liability is something that takes your money (or assets) away from your pocket in the future. Website Wikipedia, for instance, says liability is a future sacrifice of economic benefits. You may find it difficult to understand. Here, we provide you an easy-to-understood version to understand liability. It is something you owe, and it will take your money (or assets) away from your pocket in the future.
Common types of Liability
Everything that takes your money (or assets) away from your pocket could be called liability. When talking examples, there are a lot. Here, I am going to walk you through several of them, the most common types.
i. Business Liability
⇨ Loans, Tax, Rent, Wages, Utility bills, Operating cost, etc.
| Business Liability | Types |
|---|---|
| Loans | Short-term debts, Long-term debts… |
| Tax | Income tax, Estimated tax, Employment tax, Sales tax… |
| Rent | Office rent, Equipment rent… |
| Wages | Employee salaries |
| Utility bills | Electricity, Water… |
| Operating cost | License renewal fees, Company Annual fees (LLC)… |
ii. Personal Liability
⇨ Service Subscription, Loans, Tax, Utility bills…
| Personal Liability | Types |
|---|---|
| Service Subscription | Netflix, Youtube Premium, MasterClass subscription… |
| Loans | Credit loans, Car loans, Student loans, Mortgages… |
| Tax | Income tax, Capital gain tax, Property tax, Real estate tax… |
| Utility bills | Electricity, Water, Gas |
Final thought
The word liability has been widely used when we are talking about achieving financial freedom. Hope this article helps you to understand what liability is.
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