Your Personal Balance Sheet. Do You Know What are Assets and Liabilities?
Looking at your personal balance sheet, do you know what are assets and liabilities? If you answered no, you may be in trouble. Trusting someone else to take care of your financial future can be a time saving and easy way to insure your assets and liabilities are kept in check, but knowing the basics will help you decide for yourself whether or not you are being protected appropriately.
An asset is something you own that has quantifiable, positive value.
Liquid assets may include cash, checking and saving accounts, money market accounts, CDs, savings bonds, and insurance policies (the cash value). Liquid assets are considered liquid because you could in theory get immediate cash. This can often be referred to as cash on hand as well. Often, liquid assets can change radically from one day to the next just like a river or waterfall.
Securities are an asset using the present market value. Securities may include stocks, bonds, and mutual funds. Securities are often considered a long term asset because they often build value over time. Securities may not be considered an enormous asset today, but that security may be worth considerable more tomorrow.
Durable goods are a form of assets. Durable goods include autos, bicycles, mobile homes, collectibles, furnishings, furs, jewelry, assorted home or sports equipment. Durable goods are anything you own that has value, but that value is not likely to be used. Instead, durable goods may increase your assets, but they are enjoyed as they are today rather than tomorrow.
Real property is determined by an asset based on its actual worth. Good examples of real property would be a house, condo, vacation home, or income property. These types of assets are valuable and usually really going to increase your asset value. However, you will find that you do not generally get this as cash as quickly. There is actually considerable debate on whether or not real property is more an asset than a liability.
Finally, receivable loans can be considered an asset. If someone owes you money, that money is a future asset.
Liabilities are financial debts owed or promised to a company or borrower. For instance, you may owe a car payment. However, you do not owe the car. You own the car. However, you borrowed money to pay for the car using the car as collateral. This means you own the car, but you borrowed money using the car. Therefore, your car is a liability. This holds true for mortgages as well.
Credit cards companies often work differently. You would think that what you owe is the debt for the items you purchased. However, you will find that credit card companies actually retain ownership of the property in question until the debt is paid. This is a dangerous for of liability. However, credit card liability is one of the most common forms of debt in the United States.
When glancing at your personal balance sheet, do you know what are assets and liabilities? Hopefully, we have helped clear up these issues for you!
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