Understanding financial assets

Whether you’re trying to figure out what you have on hand for a personal "rainy day" fund or to calculate your net worth, you’ll want to count your assets.

What's an asset?

An asset is anything you own that adds financial value, as opposed to a liability, which is money you owe.

Examples of personal assets include:

• Your home
• Other property, such as a rental house or commercial property
• Checking/savings account
• Classic cars
• Financial accounts
• Gold/jewelry/coins
• Collectibles/art
• Life insurance policies

How to calculate your net worth with assets

If you’re calculating your net worth, you should tally your assets first. Include any money you have in the bank as well as the value of your investments. Include your property value and the worth of your car if you were to sell it, along with any monthly payments you might receive from a pension or retirement plan.

Then subtract your liabilities, which are debts you owe. That includes the remaining mortgage on your house and the balances on credit cards or student and car loans.

The amount left is your net worth.

A business can have assets, too, that might include loans made, stock, cash on hand and cash in the bank, as well as accounts receivable. The business’s other assets might include real estate, office property, vehicles, inventory and even books of business (the client base).

Financial assets

Many people rely on stocks, bonds and mutual funds for savings and investments. Financial assets are considered liquid, as people can typically sell them easily. But they can also lose value over time, such as during a decline in a company’s share price.

Some consider real estate a type of financial asset, but it’s also considered a physical asset. Physical assets are tangible objects, such as property, art or valuable heirlooms, that require upkeep to maintain or increase in value. But like stocks and other financial products, they can also lose value according to the demands in their markets.

Real estate can provide a nice nest egg and current or future income, but the real estate owner must also pay property taxes and sometimes management fees, maintenance costs and a mortgage. You may owe taxes on gains each year and when you sell. Also, if a rental property sits empty, it doesn’t generate income.

Types of asset accounts

Asset accounts are held by a bank or investment company. They allow you to deposit and withdraw, depending on the asset’s rules. Here are some of the types of asset accounts:

• Brokerage account: These accounts typically hold stocks, bonds and mutual funds. A brokerage account lets the owner buy and trade these commodities. Full-service brokerage companies have financial professional to help clients make investment plans, too. Discount brokerage firms offer the buy/sell option but are a do-it-yourself philosophy not offering personalized service or advice.
• Savings/checking/money market accounts: These asset accounts allow the owner to have money stored in a safe place, such as a bank. Some of these accounts can be accessed at brick-and-mortar locations, and some are only online. They may offer interest on the money deposited, and it may be guaranteed up to a certain amount by the FDIC.
• Certificates of deposit: A certificate of deposit (CD) is an instrument that gives the owner an amount of interest on the money invested for a specific time span. A CD is an asset held in a bank or other financial institution.
• Retirement account: Retirement accounts include 401(k) plans, 403(b) plans, IRAs and pension plans, to name a few. These are important asset accounts to grow, and they’re held in a financial institution. There may be penalties for removing funds from these accounts before a certain time.
• College savings accounts: A college account can be as simple as a savings account earmarked for the student’s education. It can also involve tax-advantaged funds like a 529 plan or a Coverdell account (also known as Education Savings Account). Some students have Uniform Gift to Minor Accounts (UGMA), which can also be used for college and are considered an asset.

Increasing your assets can help ensure that you have a secure financial future. It can also give you a cushion if your family faces a crisis or needs money for an unexpected expense.