What should I include in my asset calculations? How do I know what is an asset and what is a liability?
asked Feb 15, 2014 at 13:34
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2 Answers
It's an asset if you can sell it or if it provides cash flow. For example, if you own a house, the house is an asset, even if you have a mortgage, because you can sell it. If you rent your home from someone else, it's not an asset, because you don't own it and can't sell it. Stocks, cars that you own (not lease), cash, checking and savings accounts, precious metals, collectibles, and so on are assets.
Liabilities are debts; that is, what you owe. So, for example, liabilities include: balances on mortgages, student loans, credit cards, other loans, any tax or judgment debts, and so on.
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"...If you rent your home, it's not an asset, because you can't sell it." Why can't you sell a house you rent out? Where I come from you can, and a rental property would defiantly be considered an asset.– VictorCommented Feb 15, 2014 at 20:43
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3I don't mean that you can't sell a home that you own and rent to others; obviously, you can do that. I mean that you can't sell a home that you rent from someone else. You can't do that anywhere, because you don't own it. Commented Feb 15, 2014 at 20:45
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There are a number of 'net worth' approaches you can use.
The broadest is to add up all retirement accounts, savings accounts, insurance, home value, and value of possessions that can be sold for a price worth listing, cars, collectibles, art, etc all included. Then subtract any liabilities, mortgage, credit card or personal debts, etc. This is an "inheritance" net worth, everything you'd leave to your heirs if you die.
Many people are looking for their net worth to track their savings to retirement. This starts with the above, but I'd remove cars and possessions. Unless you have an expensive piece of art to fund retirent, these all should be subtracted (or not counted in the first place). I'd also not include the house at all. At retirement, you need to live somewhere and shouldn't count on a big enough downsize to offer too much cash. This is my approach, my opinion. When I see others post net worth, I often see someone worth say $250k but they live in a $300k house. They really have a house but no other assets. Again, this is my approach.
answered Feb 15, 2014 at 15:22
JTP - Apologise to Monica♦JTP - Apologise to Monica
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I feel like I should keep going out of tradition, but I will sit back and enjoy the fact that I'm now part of the high rep club for criticizing another's answer. Carry on! ;))– user11865Commented Feb 15, 2014 at 18:58
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2Upon further reflection, I'm not going to engage in this dialog. DV, don't DV. Club? Hardly. Commented Feb 15, 2014 at 20:35
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@JoeTaxpayer - +1, totally agree with you. Even though considered an asset when filling out a credit application form, I would not include a depreciating item like a car or furniture as an asset in my net worth.– VictorCommented Feb 15, 2014 at 20:54
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I use the definition of an asset being something that makes you money either through capital or income. For every day you hold a depreciating item like a car it is losing value. So when I buy a depreciating item I consider it as actually being a liability as it is reducing my net worth every day I hold it.– VictorCommented Feb 15, 2014 at 22:12
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