One way to think of assets and liabilities is as vehicles or containers. They are either positive or negative. The positives are the assets, where you can build them up and they will bring more money into your life, while the negatives, which are the liabilities, require you to pay them and thus they are siphoning money away from you.

Assets – Assets are anything that brings money into your financial system once all of the expenses are counted. In this interpretation, a vehicle is not an asset because it takes money away from you each month, even if you have it fully paid off (because you still incur gas, insurance, maintenance and parking expenses). A rental property is an asset if you own it and it brings a net income every month to you. Money you lend out on person-to-person lending sites counts as assets also.

Assets can be broken down into two categories:

• Liquid Assets – If an asset can be turned into cash in a week or less with a minimal amount of loss of the asset, then it is a liquid asset. Checking and savings accounts, many mutual funds, and CDs are all examples of liquid assets.

• Non-Liquid Assets – These are assets that are not easily convertible to cash within a reasonable time period. A rental house, a business you own, and stocks in a startup are examples of non-liquid assets.

Liabilities – Liabilities are anything that takes money away from you, which is the outflow of money from your financial system. The official definition of a liability is: a financial obligation, debt, claim, or potential loss. The goal is always to minimize or eliminate as many liabilities as possible to keep the money for yourself and build up your assets.

Let’s look at the type of liabilities anybody out there can face:

• Permanent Liabilities – Taxes, groceries, utility bills, and transportation costs are examples of liabilities that cannot be eliminated. These liabilities will be with us for as long as we are part of this world. But they can be managed and optimized so you are paying as little as possible.

• Temporary Liabilities – These are expenses that have a deadline. Paying off your car, paying off your credit cards, and paying off anything else that takes money away from you each month is a temporary liability. You can choose to pay more towards it every month and there’s a date by which you will have paid the liability off.

Understanding that everybody has assets and liabilities in their lives and knowing how they work will help you to begin to lower or eliminate your liabilities and increase and acquire more assets.

In my first post, we determined that your financial life is in fact a system. Maybe a system in disarray, but we’ll look at that in the future. For now, let’s look at what makes up an “average” financial system. Here is what I’m assuming as a backdrop to this discussion: generating income of around $60,000 per year with the goal of retiring with $1.5 Million, and then putting that amount into a very safe investment generating 5% per year to produce approximately $75,000 per year in retirement. To see how to achieve that goal, let’s start by looking at the “processes” in everybody’s financial life.

Processes - You can think of processes as any type of movement of money, assets or liabilities. The processes of an average financial system are:

Money Inflow – Some examples include depositing a paycheck, receiving interest earned from a person-to-person loan on Lending Club, cashing a tax refund check, and having a friend return the $20 she borrowed. Money flowing into the system, coming to us, is part of this Inflow process.

• Ongoing – There is no 100% guaranteed ongoing income, but some things come close. Your salary is one example, where although you might lose it with one job, you can still find other employment, and the income is pretty stable. Other ongoing income can be interest earned on an investment that goes on for years.

• Limited – This could be that bonus that you got at the end of the year or the valuable baseball card you sold on eBay. Anything that happens infrequently and in an unpredictable manner falls into this category.

Money Outflow - Buying coffee, paying rent, having taxes taken out of your paycheck, paying for a parking ticket, investing in a mutual fund or letting a friend borrow some cash are all part of the Outflow process. This process encompasses any money that is going away from you.

• Ongoing – There are certain outflows of money that you can’t stop, including paying taxes, buying groceries, paying your power and gas bills, and so forth.

• Limited – Limited money outflows are expenses that can be stopped. Paying off the car stops the car payment. Other limited outflows include buying a computer or paying off a loan. Another example is lending out some money in p2p loan portfolios on Lending Club or making other types of investments.

Realizing that the flow of money in and out of your life is where you have the most control, it makes sense to break this process down, analyze it and change it if needed. In this way, you can make sure you keep as much money as possible.

Next, we’ll look at assets and liabilities as part of the financial system.

When we were children, our responsibilities were nonexistent. The only thing that concerned us was when our next meal was and how much play time we could get away with before our parents made us do homework or go to bed.

Now, as adults, everything is different. We hold all of the responsibilities, and for many this includes being responsible for their own children. The financial responsibilities added to all of the other responsibilities might give us the feeling of being overwhelmed and not in control of our lives.

I have been faced with my own responsibilities, and since I don’t like the feeling that comes from not knowing what to do because there is too much to do, I have stumbled upon something that has helped me get a grip on everything. Maybe it’ll help you, too.

The answer is to systematize as much as possible of your life. Now, the word “system” might seem cold and remind us of industrial machinery, so feel free to substitute your own name for it, but I think the idea of systematization works and is the only way to manage a life in the 21st century.

Many of us have been using systems without realizing it. Getting Things Done is a system, person-to-person borrowing and lending with Lending Club is a system, and working with any exercise “program” is a system. According to the dictionary, a system is “a group of interacting, interrelated, or interdependent elements forming a complex whole.” Doesn’t that describe your life? Which is a group of interacting and interrelated elements, or areas of life forming your complex life as a whole.

Now that we have determined that your life is like a system, it’ll be easier to break it down into different compartments, processes and responsibilities, which are much easier to work with than having to manage the entire life at once. Once we realize that we can work and manage our lives just like we can any system, and break it down into its most atomic elements, we’ll no longer be overwhelmed. Because now, to change anything, all that is required is one tweak here or another there.

We can look at our finances as a system within the bigger system of our lives. By looking at personal finance with logical thinking, we can break it down, analyze it and change it accordingly to get the results that we want. Because the goal is to retire wealthy, we’ll work on our financial system in this next series of posts to see how to achieve this goal.

There are support programs for everything in life. They are there for a reason, and the reason is that it is much easier to accomplish something when somebody is there with you who has gone through it, understands what you are going through and wants to you to pull through it and win.

In sports, support is readily available – from other people that are doing the same thing, from coaches and from trainers. In training for a half-marathon, the best support that I found effective was having a friend who was constantly there when I didn’t feel like showing up for training.

When training for your Money Marathon, it is important to use as much help as there is available, and there’s a lot of it available if you know where to look and what to look for. Here are several types of support that might be available to you:

1. Unbiased Professionals – These are the lawyers, accountants, advisors, SCORE counselors, and other veteran professionals from your field. For example, sometimes when you’re in a financial bind, you can call your accountant and ask for advice. Because of his or her unique position you may be able to get some general advice to keep you moving further.

2. Biased Professionals – There are many professionals out there, from bankers to brokers to insurance agents, who are willing to explain everything about their products. However, you should keep in mind that they are looking for your business and might not tell you the whole story. It’s best to approach them when you already know what you are looking for and only need them to fill in some details and start the ball rolling on what they are offering.

3. Fellow Marathoners – There are always people that are in a similar race to you who are local. It might help to ask around and research other people who are on the Money Marathon and would be interested in talking about saving, investing and related topics.

4. Online help – Since you are reading this on the web, it is safe for me to assume that you have access to the Internet on a regular basis. There are thousands of sites and groups dedicated to providing support and sharing information on savings tips, investing in stocks, real estate, p2p lending, cost cutting and pretty much anything else you can imagine. Start with a search on Google Groups and Google for forums such as “investing forum” or whichever topics interest you.

We here at Lending Club remind you: don’t go racing off on your Money Marathon alone. It is much easier to be running with somebody or even as a group and having fun along the way, while at the same time supporting each other and sharing information.

In any competition, there are always ways to measure competitors. You could look at the time it takes them to finish, the distance they compete in, and the level of difficulty, just to name a few. The world’s best athletes set their first priority as competing against themselves and trying to better what they scored before. Competing against other people will only make things worse, as there will always be somebody that appears who can do one thing or another just a little better than you can.

When I’m looking at any run, I don’t look at the top winners from previous years and try to beat them. I look at what I have done before and set a target of several percentage points better than I have done before. Setting benchmarks against other people will only frustrate and disappoint you, eventually leading to giving up or doing things you would later regret.

This can be called “the keeping up with the Joneses” phenomenon.

In your Money Marathon, you’ll want to avoid competing with the Joneses or anybody else for that matter, and only compete against yourself. There are many ways to do this. Look at the previous year. How much money did you save? How much did you invest? How much did you spend? How much did you earn? How much did you keep for yourself? How much time/energy did it take you to do all of the above?

Now, you can add 5% to 10% to those numbers for the next year. Aim to earn 10% more this year, to save 10% more than you did last year, to increase your savings rate by 10%, invest 10% more in P2P loans on Lending Club, and so forth.

If you are comfortable and you have previously achieved 10% growth across the board, you might aim for 15% or more improvement. But don’t try this the first time; you want to see how you initially compete against yourself first and then set bigger goals.

As long you as you improve performance from year to year, you will never lose. You will always be winning, while others will be chasing the next big thing. Stick to the basics of bettering your numbers each year and then you’ll look like one of the “Joneses” to other people.