What Is a Liability in Oct 2021?

What Is a Liability & Why You Should Care

While the Dream Is to Own Everything, That’s Not Always Viable. Most of Us Need to Buy Larger Necessities on Credit. The Question Is, Are Liabilities a Bad Thing? Let’s Help You Find Out.

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What Is a Liability & Why Is It Vital to Know?

Without the proper knowledge, you could get lost in the financial world!

The word ‘liability’ sounds like a bad thing, but is having liabilities genuinely negative?

Don’t worry! We’re here to be your guide.

We’ll help you discover:

  • What it means to have liabilities.
  • The different types of liabilities.
  • If it’s dangerous to have them.

As leaders in the field of equity release, we thought it necessary to assist you in fully understanding all the essential financial terms. That way, you too can become an expert and make all your financial decisions with total confidence.

Now, let’s unlock all there is to know about liabilities.

Liabilities Explained

Let’s be honest. The reality of life today is that most of what we buy needs to be on credit1, mainly the big-ticket items.

In a nutshell, liability refers to an item you possess that must be paid off to a lender. 3 characteristics can define the term:

  • Your borrowing from a person or a bank to improve a business or personal income. This income will then be payable over a short or lengthy period.
  • The use of an asset, service, or other transaction that yields an economic benefit, which is then paid off later.
  • A duty or responsibility obligating one entity to another, leaving little or no discretion to avoid settlement.
thinking

2 Liability Classifications

Current Liabilities

Current liabilities are usually expected and should be covered within a year.

These include:

  • Wages
  • Accounts
  • Taxes
  • Accounts payable2
  • Portions of long-term bonds
  • Short-term obligations

Long-Term Liabilities

Long-term liabilities are reasonably expected but not to be liquidated within a year. They’re long-term financial obligations.

They include:

  • Issued long-term bonds
  • Notes payables
  • Long-term leases
  • Pension obligations
  • Long-term product warranties, like cars

Liabilities vs Assets

While liability is not technically yours but in your possession, it becomes an asset once it’s paid off. So if you own your car, your house, or your jewelry in full (to name just some examples), you could be rich in assets.

liability

In Conclusion

What’s excellent about equity release is that you don’t entirely need to own your home to unlock the cash in it. While it can still be a liability, you’ll use the money you unlock through equity release to pay off your bond in full, before keeping the balance.

While in an ideal world, everything would be bought in cash, as long as you navigate the financial world carefully, you can have liabilities that are well managed.

To make the most of your liabilities and assets, be sure to seek counsel from a professional financial adviser. You won’t be sorry!

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations.

Contributors: Nicola Date, Katherine Read
Reviewed by Francis Hui

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Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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