Assets are an important part of your finances, and although you may have a general understanding that assets are better than liabilities, you may be wondering what is considered an asset?
For example, is a checking account an asset? Below, we’ll list everything that is considered an asset.
You may notice when you look at your personal balance sheet that assets make up the bulk of your net worth. Assets are defined as having value, and generally, they bring you a valuable cash flow.
Bank Funds: The money you have in your checking account or savings account is considered a solid asset. As you can easily access these funds that makes them especially valuable.
Cash: The most obvious asset. Any cash you have is an asset, whether in your house, wallet, or pocket. Any funds you receive via Venmo or a similar platform but have not cashed out yet are also assets.
Certificates of deposit: Commonly known as CDs, certificates of deposit have a predetermined date you will receive your original buy-in plus interest.
Life insurance policy: If you have taken out a life insurance policy, this may be considered an asset. However, term life insurance policies are not usually considered assets without a cash surrender value.
But whole life insurance policies are more likely to be considered an asset because they typically have a cash-value investment component embedded in the policy.
The money you receive from a loan: If you’ve recently loaned money to somebody with clear expectations of repayment, you can consider this an asset if you expect to receive it.
Mutual funds: If you have mutual funds in a taxable investment account these are considered an asset.
Personal valuables: This can be a bit tricky to determine as an asset, as this term can cover a broad range of items, such as inherited jewelry or signed memorabilia from a celebrity.
Although these would both have a monetary value that can be considered an asset, they also hold far more sentimental value.
Precious metals: Gold, silver, or other precious metals are considered assets worth the current price of that metal.
Real estate: Properties and any structures on those properties are considered assets, such as your home. The value of these assets can be determined by subtracting any amount you owe as a mortgage from the total value of the home.
Retirement funds: Retirement accounts such as a 401(k), IRA, or TSP are considered assets.
Stocks and bonds: Stocks and bonds held in your name are considered assets.
Vehicles: While considered an asset, your vehicle is a depreciating asset. This means that it’s perpetually losing value from the second you buy it. You should always be careful when factoring this asset into your calculations.
Please note that the above only covers personal assets. Businesses may have other assets such as inventory or accounts receivables.
Assets are important because their sum contributes to your net worth. Your net worth is calculated by subtracting your liabilities from your assets.
Liabilities are things like debts owed, such as a mortgage or car payment. If you have more assets than liabilities, then you have a positive net worth.
Ideally, your net worth should increase over time and this is especially important when planning to retire. A substantial amount of assets will allow you to fund a comfortable retirement.
As part of a loan application, lenders can take liquid assets and bank funds into account. When applying for a home loan, the lender will most likely request more information about the funds you have available.
These liquid assets can be the difference between your loan getting funded or not, especially if you have a bad credit score.
Firstly, know where you stand. Take an inventory of your assets before you try to grow them further. You should decide which assets are useful to your lifestyle and which are not, and then set goals for the future value of your assets.
A guaranteed way to increase your assets is to monitor and decrease your spending. A tighter budget means more resources to allocate towards building assets. You should also find ways to increase your income.
However, while saving money is effective in increasing your assets, it’s not enough to just do that. To quickly grow your assets, you will need to make strategic investments with your money where you can capitalize on a return.
This investment could be in real estate, the stock market, or your own business. Wherever you choose to invest, make sure you do plenty of careful research first.
Not only does building your assets and achieving a higher net worth paint an overall better financial picture, but sets you on the path to things like homeownership. Lenders look favorably on borrowers with substantial liquid assets.