What Are Assets In Personal Finance?

It's easy to think your income is one and the same as your net worth. But instead of focusing on your take-home pay alone, you should also consider your assets.  Here, we'll go over what assets are, different types of personal and business assets, and how they can be helpful when calculating net worth.

Financial Assets: A Definition

Anything that has financial value is considered an asset. This is the opposite of a liability, which is something you owe, like a debt. It's essential to understand what assets you have because they play a crucial role in calculating your net worth.

Examples Of Asset Types

There are two classes of assets: personal assets — or individual assets — and business assets. When determining net worth, it's important to distinguish between the two for several reasons. While you own individual assets, business assets are owned by a company.

They're handled a bit differently, too. While you own a personal asset entirely, you might have business partners, and therefore your business assets are split and all reported in financial statements. Business assets are also reported each year on taxes.

Examples of personal assets include real estate, cash, and retirement accounts; some examples of business assets include machinery, commercial buildings, and inventory.

Liquid Assets: What Are They?

In a nutshell, liquid assets are anything that has value and can be easily converted to cash if needed. Liquid assets are typically viewed similarly to actual cash because they are easily accessible.

Types Of Personal Assets

Personal assets can be broken down into two main categories: intangible and tangible. Intangible assets don't take a physical form, but hold value. Tangible assets are things you own that have value and take a physical form. Let's go over examples of personal assets:

Real Estate

Real estate is a tangible, personal asset and can be found in the form of a rental property, a home or land. While real estate itself is considered a personal asset, a mortgage isn't. That's because it's money you owe to a lender.

Cash And Cash Equivalents

Cash includes bills, coins, legal tender, and checks you've yet to deposit. Cash equivalents are short-term investments intended to be cashed within 90 days—think certificates of deposits and Treasury bills.

Bank Accounts, Investments and Retirement Accounts

Money stashed away in your savings, checking, and money market accounts are intangible assets.

Other assets include money in taxable accounts, such as stock brokerage accounts, mutual funds, ETFs, and bonds. You can also consider pensions and retirement accounts such as 401(k) and IRAs, as well as Social Security income, as assets.

Personal Property

Your personal property also has value and adds to your net worth. This includes things like jewelry, and collectibles such as designer handbags, classic cars, comic books and art.

Insurance Policies

Life insurance policies such as whole life and permanent life insurance have a cash value. That's because you can tap into the policy to access cash. In turn, they're considered an asset. Annuities, which have a stream of income tied to them, are also considered an asset.

Types Of Business Assets

Now, let's walk through common examples of business assets.

Current Assets

Current assets are assets that can easily be converted into cash within a year's time. Current assets for a business can include cash accounts, cash equivalents, inventory and accounts receivable. 

Fixed Assets Or Non-Current Assets

Fixed assets are usually larger-ticket items that a business holds onto for a year until it's converted into cash. It might include tangible assets like commercial buildings, land, other types of real estate, machinery and equipment. Fixed assets might consist of intangible assets like intellectual property — think copyrights, patents and trademarks.

Operating Assets

Operating assets are assets that you use regularly for your business. This might include both current and fixed assets, like equipment, machinery, inventory, accounts receivable, patents and copyrights.

Non-Operating Assets

Conversely, non-operating assets are assets that hold value, but you don't use regularly for your business and aren't vital to your company's operations. Assets under this camp include vacant land, backup equipment, and investment securities.

Calculating Net Worth With Assets

First, you tally up all your assets to figure out your net worth. This includes both personal and business assets. Next, you subtract your liabilities to get your net worth.

Liabilities Vs. Assets

As mentioned, assets have value and add to your net worth. Liabilities, on the other hand, don't have value and take away from your net worth. Personal liabilities might include mortgages, personal loans, student debt, credit card debt, unpaid taxes, or car loans. Business liabilities include accounts payable, taxes, and other financial debts or obligations.

FAQs About Assets In Personal Finance

How can I determine the value of my assets?

To determine the value of your assets, you add up the value of all your assets — cash, investments, property and businesses. The grand sum is how much your assets are worth. 

What is considered an asset?

An asset is anything you own that has value and could be converted into cash. Types of assets can include cash, investments, collectibles, art, jewelry, land, your home, and real estate. 

Is labor an asset?

Labor isn't considered an asset. Because you need to pay a worker a salary or wage, labor is considered capital. Capital is the value of an investment for a business. 

Is cash an asset?

Yes, cash is an asset. Cash is of value, is highly liquid, and can easily be used to purchase other assets.

Is land an asset?

Yes, land is an asset. It's typically considered a long-term asset as you usually hold onto it for at least a year. Because it's not easily converted to cash, it's considered illiquid. 

What is a short-term asset?

A short-term asset is any asset that you hold onto for one year or less or plan to convert to cash in the next year. Short-term assets may include high-yield savings accounts, certificates of deposits (CDs), Treasury bonds and short-term investments.

The Bottom Line: Assets Are Key To Knowing Your Net Worth

To grasp your net worth fully, you need to evaluate your debts against your assets. You can track your wealth-building efforts and make adjustments to ensure you're on track.

Download the Rocket Money℠ app to get a bird's-eye view of your debts and assets, including cash, investments and retirement accounts.