The post you all have been waiting for – what on earth is a liability? Following up on ‘What the heck is an Asset‘… we have liabilities. Genuinely, we all have liabilities – and I’ll be outlining some of the most common ones.

A liability, from a personal finance perspective is something (a pet, a child, a home, a subscription service etc) that takes money out of your pocket, ending in negative cashflow. Put simply, anything that takes money from you can be viewed as a liability. At the very least, a financial liability.

For the average person, their cars, their pets, their children and homes are mostly liabilities…

Thinking about the definition of a liability from this perspective should help re-align your thinking. When it comes to our pets, they do provide us things in the sense of the emotional support that we gain from them, or the companionship that they provide for us. But at the end of the day, they’re financially dependent on us, and in the personal finance frame, they’re a liability. Pets take money out of our pocket, in the form of needing food, needing shelter, needing medical or veterinarian care and insurance. And when they pass, we pay hundreds of dollars in order to get them cremated or buried. I say this as a pet haver, I love our 4 pets and they’re a liability I’m happy to have around. They bring happiness and companionship that is invaluable to my family. Now, what about our Cars?

Cars are probably one of the largest liabilities in our lives! (Unless you own a boat ⛵ ) According to a study conducted by the American Automobile Associations (AAA), the average American is spending upwards of $773.50 a month on their new vehicles, with insurance costing about $99.50 per month. This is in a country (the USA) where the median income for a household of four is about $50k in the year 2023. That’s just over 18% of household income being spent on a liability.

Sometimes, people will call a car a ‘depreciating asset’ but per our personal finance rules, that implies that the car was once producing cashflow. But unless you were driving Uber or Lyft or providing rides to people for profit, I have my doubts on if your car was in fact a financial asset.

I say this with confidence, as an owner of a 2003 Corvette Z06 – my car is a liability! All I do is spend money fueling it ($70 every 10 days), spend money on repairs and maintenance. I’ll be doing a comprehensive breakdown of how much it costs me to keep my almost vintage car in the coming months.

Don’t have a car? Don’t have pets? Well, children can be a huge financial liability!

According to a 2015 study conducted by the United States Department of Agriculture, a middle income family will spend on average about $233,610 on raising a child to adulthood (for a child born in 2015, adjusted for inflation and EXCLUDING advanced education costs).

And with the current rate of inflation we have experienced in the year 2022/2023, the costs are expected to exceed $300,000 in the next 5 years.

However, understanding the potential upsides and joys of raising a child, I wager most people are willing to spend that and more to raise happy and healthy children in America. But this is a finance blog so, I’m filing them squarely under the liability category.

With everything outlined above – we only have one life to live and one chance to seek happiness and wealth. With that, there are tons of items that can fit in either the Asset category or Liability category. Whether you have a farm or travel or run a business, each purchase is a personal one, so I’m not the one to dictate what is and isn’t ultimately a liability. I only aim to open our collective horizons and offer a place for healthy discourse. Of the things that take money from my pocket, I’m happy to have the liabilities I have in my life, as there were choices I had the privilege to make over my lifespan. Get out there and continue to weigh your decisions, and work towards your own financial wellness (:

-Michael, with military.cash

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