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Next, you must confront the other side of the equation: liabilities. Liabilities are debts and financial obligations that you owe to others. This category is not limited to credit card balances and personal loans; it also includes outstanding mortgages, car notes, student loans, and any other money you are required to pay back. It is essential to distinguish between the asset and the liability regarding items like cars and homes. While a home is an asset, the mortgage on that home is a liability. Similarly, while a car is an asset, the loan used to purchase it is a liability. You must calculate the total amount you owe, including the current balances on all debts, to determine your total liabilities.
