The four facets of finance

You have your assets, which can be described as the value of things you own like your property or your shareholdings in companies, savings in a banking account.Values of your assets can fluctuate depending on a lot of factors, but they will always remain assets.Certain assets like properties tend to appreciate in value, but other assets like cars and machinery depreciate over time. Shares will fluctuate according to the stock market and the performace of the company. The best assets you can have are income producing assets like properties which are rented out.

The opposite of assets are the liabilities. In laymans terms your liabilities are your debts. Liabilities(Debts) normally are in monetary form, like money you borrowed to finance an asset, a property for example. The person who lent you the money normally expects to get this money back with interest which is their income.

Income is value derived from actions like wages or from one of your assets (rent from a property which is let or interest from money in the bank). Normally income is in the form of money, but it could be in the form of credits or shares. Strictly speaking a credit is really an asset. It is monetary value which saved for later use.

Again income has an opposite which are expenses. Expenses is money/values going out. This value is usually in the form of money and can come from any of the other 3 sides of finance. It can be money coming out of your income account, From your assets for example you might pay for something from your savings account or it can add to your liabilities account e.g you borrowed money to purchase an asset or service.

An income can increase your assets or it can pay for expenses. Expenses can be financed by income, assets or liabilities, Liabilities can be increased by expenses or can be decreased by income. In a perfect world you assets value should exceed your liabilities