How Do You Know What Are Assets?

Like demand and supply, you've probably heard about assets and liability in one context or another. These terms are often used in economics and business to describe what a person, company, or government owns versus what they owe.

You've probably learned that assets are better than liabilities, and if you have more liabilities than assets, you are in a financial pinch. To avoid this catastrophe, you must know what assets are and how they work.

So what are assets? What forms of assets are there, and how can you use them to your financial advantage?

What Is an Asset?

An asset is a value owned by an individual, company, or government. It can include tangible items such as physical property or cash and intangible items such as intellectual property or goodwill.

Assets can generate income, provide value or serve as collateral for borrowing money. Since assets can generate more wealth, protect against financial risk, and support long-term financial goals, they are a critical component of any financial plan.

How Does an Asset Work?

Whether you're a business owner, an investor, or a consumer, understanding how assets work is essential to achieving financial success.

The most important thing to know about assets is that they generate income or add value to what you own. Not all types of assets produce income, but many do, whether that income is derived from a steady stream of revenue or one-time payments.

Assets can also protect you from financial risk and enable you to achieve your long-term financial goals. For instance, you can secure loans or access working capital using your assets as collateral. In this case, it is crucial to be strategic about how you use your assets so that you can maximize their value and achieve financial success over the long term.

Your assets can also keep you afloat during difficult financial times. If you lose your job or experience an unexpected expense, liquid assets like cash or stocks can help you cover your financial obligations until you get back on your feet.

How about retirement? Your assets at that stage can also play an important role in determining how financially secure you are. A 401(k) or other retirement accounts can cover your living expenses and make retirement stress-free. 

In a nutshell, assets provide the financial resources to achieve your goals, build wealth, and protect yourself from financial risk.

Types of Assets

There are several different types of assets, each with its unique characteristics. Here are some of the most common types of assets:

Fixed Assets

These are long-term assets used to produce income and do not easily convert into cash. If you own or control a business, fixed assets such as real estate, machinery, or equipment allow you to generate revenue.

Whenever you need quick cash, fixed assets are not ideal, as they are not easily liquidated. However, they can generate a steady income stream over time and provide security and stability to your financial situation.

You may lose value from what you own in trying to get immediate cash flow from your fixed assets. Liquid assets are better for emergency cash.

Liquid Assets

These are assets you can easily convert into cash. In contrast to fixed assets, liquid assets are used when you need to cover your day-to-day expenses or an unexpected financial emergency. Examples of liquid assets include cash, stocks, and bonds.

While liquid assets can provide immediate funds, the downside is that they typically do not generate much income over time.

Tangible and Intangible Assets

Many assets and liabilities consist of tangible and intangible items. 

On the one hand, tangible assets, also called real assets, refer to what you can see or touch. On the other hand, you can't see or touch intangible assets because they have no physical form.

An example of an intangible asset is intellectual property, such as patents or copyrights, that allow companies to protect their ideas and make money from them. 

Examples of tangible assets include physical property such as land, buildings, and equipment.

Current Assets

Assets are current when you can convert them into cash within 12 months. Examples include cash and cash equivalents, prepaid expenses, and accounts receivable. Current assets are what you use when you want to meet your short-term financial needs.

Examples of Assets

There are many examples of assets, and we've classified them based on the asset types discussed above.

Examples of Liquid Assets

• Cash
• Savings account
• Money market account
• Accounts receivable
• Stocks and bonds
• Treasury bills

Examples of Fixed Assets

• Residential or commercial real estate
• Machinery and equipment for a business
• Land and buildings for a business
• Intangible assets such as trademarks, patents, and copyrights
• Personal property such as furniture and vehicles

Examples of Intangible Assets

• Goodwill
• Brand equity
• Customer loyalty and relationships
• Customer data and information
• Company knowledge and expertise
• Business processes and systems
• Intellectual property, such as patents, copyrights, and trademarks

Examples of Tangible Assets

• Real estate and buildings
• Machinery and equipment
• Land, vehicles, machinery, and other physical property used in a business
• Jewelry, art, furniture, and other personal property
• Physical commodities such as agricultural products or precious metals
• Inventory that you can sell to generate cash or equity

Examples of Current Assets

• Cash and cash equivalents, such as checking accounts and money market accounts
• Accounts receivable and other short-term debt owed to the company
• Inventory and other short-term assets you can convert to cash quickly
• Prepaid expenses, such as insurance premiums and utility payments
• Investments intended to generate short-term cash flow, such as bonds or treasury bills
• Any asset that can be converted to cash within 12 months or less

How to Determine the Value of Your Assets

One of the best ways to determine the value of your assets is to track their performance over time. You can do this by comparing current and historical values, looking at asset performance and activity trends, or using other analytical methods to evaluate your assets.

Another important factor to consider when determining your assets' value is their future potential. It includes assessing factors such as industry trends, market conditions, and economic conditions, as well as considering what type of assets you have and their uses and function.

Ultimately, the value of your assets will depend on what they can generate in terms of income, revenue, and capital gains. By carefully evaluating your assets' performance, potential, and value, you can make smarter decisions about managing and growing your wealth over time.

Here's a guide to determining the value of some common assets:

Stocks and Bonds

You can easily determine the value of stocks and bonds by looking at their current market price, which is typically based on several factors, including supply and demand, past performance, and economic conditions.

You can take it further by analyzing trends in the performance of your investments over time. For example, suppose you have a portfolio of stocks or bonds with different risk levels and investment horizons. You can evaluate how each asset class performs and its future potential.

Get a financial advisor or professional investment manager to help value your investment portfolio. They can also help you make informed decisions based on their overall value and potential.

Real Estate

Your real estate assets can have a wide range of values, depending on market conditions and the location and condition of your properties. A good way to determine the value of your real estate investments is to get an appraisal from a licensed real estate agent or appraiser.

Other factors that can affect the value of your real estate assets include:

• The condition of your property.
• Current market demand for similar properties in the area.
• Zoning regulations and restrictions.
• Recent sales of comparable properties in your neighborhood.

401(k) Accounts

You can determine your 401(k) account value by looking at your total contributions over time and your accumulated earnings. You will also need to factor in any administrative or management fees, penalties for early withdrawal, or other restrictions on accessing your funds.

Work with a qualified financial advisor or retirement planning professional to maximize the value of your 401(k) account and ensure that you are making the best decisions for your financial future.

Collectibles and Other Valuable Assets

Collectibles or other one-of-a-kind items can be more difficult to determine their exact value. In this case, you should enlist the services of an expert who can provide insights into what your assets might be worth.

Ultimately, the value of any asset will depend on many different factors, including market conditions, past trends, and what the asset can generate in terms of income and value.

By understanding these factors and properly managing your assets over time, you can ensure that your wealth continues to grow and provide financial security for you and your family.

Conclusion

Whether planning for retirement or simply trying to get through the day-to-day, assets play a key role in determining your financial well-being. Focus on understanding your assets, their value and potential, and how to manage them effectively over time.

With the help of professional advisors and other experts, you can make informed decisions about your investments and maximize the value of your assets for your long-term success.