Personal assets are items of value that belong to a person. There are many examples of such tangible personal assets. They include houses, land, cars, and jewelry. Personal assets can also be any other item that has monetary value.
When individuals apply for a loan from a bank or other institution, these personal assets and their values are often considered. These assets also form the basis of the consumer net worth formula. The value of a person’s personal assets may be higher than they expect and may surprise them because so many different items can be included under this term.
Cash and Financial Account Balances
Cash and balances in financial accounts such as savings and checking accounts are considered personal assets. Other personal assets include stocks, bonds, mutual funds, IRAs, 401(k)s, rare coins, CDs, and other investments. In general, it is better to keep cash in a bank than at home because money saved in a bank earns interest, allowing you to build assets over time.
Real Estate Assets
The value of real estate often makes up a large part of a person’s personal wealth. Home ownership, land ownership, and ownership of other buildings are personal assets. The value of a home is often referred to as equity.
The equity of a home is equal to the value of the home minus any debt that is on it, such as a mortgage or home equity loan. Your home’s equity is $120,000 if your home is worth $200,000 and there is still $80,000 on your mortgage.
Any personal belongings you own that has monetary value can be considered personal property. A valuable possession can be a car, a boat, electronics, jewelry, a collectible, or an antique. Items can sell for significantly more or less than you or an appraiser expect; items can sell for more or less than you or an appraiser expect.
If you have rented your home and it is damaged by a fire, water leak, or storm damage, or if your property is stolen, you are probably not covered by your lease for damage to personal property.
You may want to purchase renters insurance that covers things like electronics, clothing, furniture, etc. There is a minimum amount to purchase such insurance, but you may need to have art, jewelry and collections appraised before they are covered.
Another type of personal asset is stocks, mutual funds, and other investments. Many people invest a large portion of their wealth in stocks and similar securities because they increase in value over time and can provide greater wealth growth than traditional banks.
Any gain you make on the sale of stocks must be reported to IRS as a capital gain. If you buy a stock for $40 and sell it for $50, you must pay taxes on the $10 gain.
Calculating Net Worth
Once you’ve listed everything you can think of, add up the assets and then the liabilities. Now subtract your liabilities from your assets. If the number is positive (assets are greater than liabilities), you have a positive net worth.
Congratulations! Now you can start building that net worth. If the number is negative (liabilities are greater than assets), you have a negative net worth, but don’t let that discourage you; it’s just your starting point.
Negative net worth is very common, especially for people who’ve been in the workforce for a short time. Now that you know exactly where you stand, you can plan your path to a positive net worth.
When properly managed, personal wealth can contribute greatly to an individual’s personal financial situation. However, it is also true that these assets can prove to be a burden if they are not well cared for or managed. Good asset management also includes asset allocation.
Financial experts caution against investing all or most of one’s personal wealth in a single asset type or location. Such a practice leads people to take on more risk than would be prudent. Instead, it is better to spread a person’s wealth across a variety of different assets so that if one asset suffers or loses value, some of the other assets can make up for it by outperforming or increasing in value.
Taking care of personal assets is also an important part of preserving value. If you are careless, you can break expensive electronic equipment. If artwork is not properly maintained, its value can also decline over time.