Most people can define an asset and a liability. Far fewer apply the definition to their own decisions, because the accounting version and the useful version are not the same thing.
The accounting definition asks what you own and what you owe. The useful definition asks a sharper question: does this thing put money into your account, or take money out? A car you own outright is an asset on a balance sheet. It is a liability in your life — insurance, fuel, servicing, depreciation. Nothing about owning it generates income. The balance sheet is not wrong; it is just answering a different question from the one that determines whether you get wealthier.
This is where the confusion becomes expensive. Income rises, and with it the standard of living, and the new money is spent on things that generate ongoing costs. The salary went up and the position did not improve. That pattern is not a failure of discipline — it is a failure of classification. If you cannot tell which side of the line a purchase falls on, you cannot make the decision deliberately.
A workable test: before buying, ask what this will cost you every month after you own it, and what it will pay you. Write both numbers down. Most purchases have a clear answer, and the ones that do not are usually the ones worth thinking hardest about.
This applies to businesses as directly as to individuals. An unused software licence, an oversized office, a vehicle that sits idle — each was bought as an asset and behaves as a liability. Reviewing that classification honestly, once a year, is one of the least glamorous and most effective financial exercises available to an owner.