If you’ve ever needed a loan, your financial institution may have asked what your assets are. You may have told them about your car, or your condo. But what exactly are assets anyway? Are they everything you own, and do they have to be corporeal?
Generally, the word asset means something that is useful or valuable. But it can have a different meaning in finance, insurance, or banking.
One of the most common types of assets are property that is owned by you. This may be a condominium, house, or lot, with your name on the title. These are assets that you must hold outright. There must be no liens, or loans against them. These property assets may be used as collateral, when obtaining a loan. They have a specific value, and can be used to back up debts, or loans.
Assets may also be personal property. Items such as vehicles, RVs, boats, jewelry, and musical instruments can be included in this term. Household furnishings, collectibles, and antiques may also be included.
Depending on what type of loan or mortgage you’re getting will depend on what is allowable as an asset. Many banks won’t consider household furnishings, or collectibles as collateral for a loan. There’s also the consideration that if at any time, you cannot repay the loan, you may possibly lose your car or house.
The next type of asset depends on how much cash and cash equivalents you have at hand. You will calculate how much money you have in your savings and checking accounts, and whether you have money market accounts, physical cash, and treasury bills.
The last main type of asset are your investments. These may include annuities, bonds, pensions, stocks, and retirement plans.
Assets are sorted into two different categories: liquid assets, and illiquid assets. It’s possible to quickly convert liquid assets into cash. This is applicable to money that sits in your savings or checking accounts. Illiquid assets are items that can’t be easily converted into cash. These may be assets such as a house, condominium, or vehicle, collectibles, and household furnishings.
When you’re determining your net worth, you’ll need to have a list of your assets, and a list of your liabilities. Liabilities, such as loans, are subtracted from your assets. This final amount will equal your net worth.
It may be worth tallying your net worth regularly. You’re in a healthy position, if your net worth in a positive balance. But, if it’s negative, than it’s time to focus on decreasing your liabilities.
Financial institutions and mortgage lenders will look at your list of assets, and your list of liabilities to determine your net worth.
A person with many assets, and few liabilities is a better candidate for a loan or mortgage, than someone who has a long list of liabilities that just haven’t budged for years.
You may wish to sit down and determine exactly what your assets are. Enter them into a spreadsheet, and keep track of them regularly.
|Elisabeth Donati is the owner of Creative Wealth Intl., LLL, creator of Camp Millionaire, Moving Out! for Teens, The Money Game, Celebrating Women and Wealth and several other financial education programs, products and services. She was the recipient of the 2010 Financial Educator of the Year Award from the National Financial Educators Council. She is known as The Financial Literacy Lady.She is author of The Money Jars: Your Magical Money Management System, The Ultimate Allowance, and co-author of Rocks to Riches for kids. Her blog, Financial Wisdom with a TWI$T, is a great place to start learning to think differently about money and investing.
Elisabeth is an expert in teaching the basic financial principles people need in a way that is engaging, empowering and fun. For information, visit www.CreativeWealthIntl.org or www.ElisabethDonati.com or call 805-957-1024.