We do only four activities with money – Earn, Spend, Invest, Borrow The Financial Equations Earnings – Spending = Surplus/Deficit Investment – Borrowings = Networth Surplus money can be used to acquire Assets like Fixed deposits, Home, Stocks and Bonds. The assets we acquire can also be called investments. When we invest, we get returns on Investment and we have more earnings next year and our surplus will further increase. Similarly, if we have deficit, we may have to borrow and when we borrow we will have to pay interest and our surplus is reduced or deficit is further increased next year. The cycle goes on year after year and we either accumulate Investments or liabilities depending on whether we are generating surplus or deficit.