What are assets?

By May 11, 2016 Blog

Your house, the cash you have in your checking account, the car in your driveway, the oak table in your dining room, the pair of running shoes in your closet, and the phone in your pocket are all considered “assets.”

However, when it comes to personal finances, assets typically refer to big-ticket items — houses, cars, boats, rental properties, precious metals, bank accounts, retirement accounts, etc. (the accounting definition is different.)

Your running shoes, beer steins, old Madonna albums, and a football with Tom Brady’s autograph may hold great personal value, but they may not be worth much on the open market. Indeed, they may be hard to value, much less convert to cash. Other assets may have cost tens or even hundreds of thousands of dollars (a college diploma) but cannot be converted back to cash.

Major assets such as homes, vehicles, land, savings accounts, stocks, bonds, and other equities can be used to calculate a person’s net worth. Banks and other financial institutions may use this information to determine how much you can borrow, if you’re applying for a mortgage or home equity line of credit (more on that later).

Assets example: A home or personal property

In addition, for certain assets, you may have only a partial ownership. A house is a typical example. Unless you’ve bought it outright, or until you have paid off your mortgage, you only have a limited amount of equity in the property. For instance, “I have 30% equity in my condo” or “I have $100,000 worth of equity in my house” reveals the amount you have paid for. The remainder is still owned by the bank.

What if you don’t have any assets beyond that beer stein collection or a copy of Madonna’s Vogue in mint condition? That’s OK … this book is written for people who want to build up their assets, and improve their long-term financial health.

This post was excerpted from Personal Finance For Beginners In 30 Minutes, Volume 1:
How to cut expenses, reduce debt, and better align spending & priorities