Expenses vs liability ?

[Arty Fresh]

I have been reading rich dad poor dad and he seems to separate expenses and liabilities into two different columns. I guess they are two different things ? For some reason I see them as the same thing since they both take money out from your pocket

But the way he has it set up is as follows

1. Income/cash flow

2. Expenses

3. Assets

4. Liabilities

So my goal is to acquire assets that generate cash flow so I can be financially free.

But anyhow what is the difference between 2 & 4 ?

[Mark S.]

@Arty Fresh

Liabilities are the opposite of assets and go on your balance sheet.  

Expenses are the opposite of income and go on your income statement.  

Example: You buy rental house for $73,000 that rents for $900/month.  You put 20% down and finance the rest (ignore closing costs for simplicity).  

BALANCE SHEET:

Assets

$73,000 4/1 SFR

Liabilities

$58,400 4/1 SFR Mortgage

INCOME (or CASH FLOW) STATEMENT:

Income

Gross Rental Income: +$900/month

Expenses

PITI Mortgage: -$443

8% Property Management Fee: -$72

18% Reserves (8% vacancy, 5% cap-ex, 5% maintenance): -$162 (transferred to property’s reserve account)

Total Expenses: -$677/month

Cash Flow (Income - Expenses): +$223/month

Some people might not treat property reserves as an expense, but that’s how I do it to arrive at a “true” cash flow number.  Others might say they “cash flow” $385/month instead of $223/month, but they’re not factoring in maintenance and repairs, turnover, etc.