Financial Literacy Lesson No- 6
Income and expenses are the outcomes of one's assets and liabilities.
- Vinita. Pal
‘What goes around comes around,’ sounds more like philosophy, right? We all have heard a lot about it in relation to karma like do good to others and good will happen to you. Wait! from where does this philosophical theory crop up? are we not talking about financial literacy lessons? Yes, we are and the reason we are talking about it is, this philosophy just not limited to the social forums but has a deep impact on the economic and finance forum, allow me to explain.
Our Earth being spherical in shape, everything in here works in a loop so basically, every action of ours has an equal or opposite reaction, Newton’s law remember? I guess Newton must have also sensed this while devising his laws. Jokes apart, this is a fact of life and it is applicable to each and every factor of life, even our economy and finance. Even though I am still in the process of building a strong foundation of my financial literacy by constantly learning, I have managed to get a grasp of how the very core of finance. i.e income and expense are tied to this ideology so far.
Let’s see how;
First thing first, how is income different from expense? Income is that COMES IN and expense is that (ex-out, pense- to draw) draws out. Good, so far? Easy to understand? NO! Is “THAT” what is bothering you? it’s done intentionally to draw your attention to it, this “ THAT” is a metaphor for money in investment which is the crux of the whole income and expense in each one of our life.
Now, let’s see how this money in investment works on the philosophy of;’ What goes around comes around.” Income and expense are part and parcel of everyone’s life. It is these income and expense records that decide each one of our financial conditions, for eg: if our income is more than our expenses then it is a sign of good and stable financial conditions on the other hand if our expense is more than our income then it is a sign of unstable or tighten financial condition. I am sure none of us want to be in the second scenario, so what we can do to create a first-scenario-like situation? The answer is very simple to adopt the theory of What goes around comes around, Feed income (money in investment) and you will see more income generated out of it. The question is to whom we must feed the income that generates more income? The answer is very simple — assets. If we feed the income to assets, the same assets will generate more income for us on the other hand if we feed our expenses to liabilities, the same liabilities will draw our money out. It is this way, what goes around comes around. Hence, I always say, “Income and expenses are the outcomes of one’s assets and liabilities.”
Point to note:
It is easy to convert the expense into income, just switch from feeding the liability to assets.