Assets make up an important part of your finances. Although you might have a general understanding that assets are better than liabilities, it is useful to know what is considered an asset.
As you look at your personal balance sheet, assets might make up the bulk of your net worth. Generally, assets have value or bring you a valuable cashflow. However, you likely have questions like “Is a car an asset?” We break down the facts below.Cash. This is perhaps the most obvious asset on the list. Any cash you have lying around the house is an asset. Think about all the places you have money on hand. You can include funds that you’ve received via Venmo or a similar platform but have not yet cashed out. Bank funds. The money you have stashed away in your checking account or savings account can be considered a solid asset. You can easily access these funds which makes them especially valuable. Money that you expect to receive via a loan. Have you recently loaned your friend some money with clear expectations of repayment? You can count this one as an asset if you expect to receive that money.
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Real estate. Properties and any structures on those properties are considered assets. For example, your home is an asset. However, you’ll need to determine its value by subtracting any amount you owe as a mortgage from the total value of the home. Personal valuables. This could be your grandmother’s antique diamond ring or the signed guitar from your favorite musician. Although both have monetary value that can be counted as an asset, it is likely that they hold far more sentimental value.Mutual funds. If you hold mutual funds in a taxable investment account, those funds are considered an asset.Vehicles. Although your vehicle is considered an asset, it is a depreciating asset. That means that it is perpetually losing value from the second it leaves the sales lot. With that, you’ll need to be careful when factoring this asset into your calculations. Precious metals. If you have gold, silver or other precious metals, these are assets worth the current price of that metal.
It’s important to note that we are only covering your personal assets. A business may have other assets such as inventory or accounts receivables.
Assets are important because their sum contributes to your net worth. You can calculate your net worth by subtracting your liabilities from your assets. Liabilities include any debts owed, such as your mortgage or car payment. If you have more assets than liabilities, then you’ll end up with a positive net worth.
The goal is for your net worth to increase over time. If you ever plan to retire, it is critical to build your net worth. A substantial amount of assets can allow you to fund an enjoyable retirement.
Lenders can also take liquid assets, such as cash and bank funds, into account as a part of your loan application. For example, when you apply for a home loan, it is not uncommon for the lender to request more information about the funds you have available. These liquid assets can be critically important to determine whether or not your loan is funded, especially if you have a bad credit score.
The first step is to determine where you stand. Take an inventory of your assets before you start growing them further. Consider which assets are useful to your lifestyle and which are not. Set goals for the future value of your assets and start taking steps to get there.
One surefire way to increase your assets is to decrease your spending. With a tighter budget, you’ll have more resources to allocate towards building assets. In tandem with this, find ways to increase your income.
Although saving money is a good start, it is not enough. In order to grow your assets more rapidly, you will need to strategically invest your money in places where you can capitalize on a return. The investment could be in a variety of vehicles such as real estate, the stock market, or your own business.
No matter which investment vehicle you choose, do careful research before acting.
Striving to build your assets and achieve a higher net worth is an admirable goal. Not only will this help your overall financial picture, but also set you on the path towards homeownership. Lenders like to see borrowers with substantial liquid assets on hand.
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