What are Personal Finance Assets? A Complete Guide
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What are Personal Finance Assets?
Personal finance assets typically refer to investments and property that you own personally and can be used as collateral for a loan. To put it simply, a personal asset in finance is something that you own, has value, and can be converted into cash. There are two types of personal finance assets you’ll come across:
- Liquid personal finance assets: As the name implies, liquid assets are those that can be quickly converted into cash. Some prominent things that fall into this category are stocks, bonds, or certificates of deposit. Liquid assets don’t lose much of their value on conversion and can be great to cover unexpected expenses.
- Illiquid personal finance assets: On the other hand, illiquid assets are those that are quite difficult to change into cash and take some time. Real estate, collectibles, and probate equity are all types of these assets. They are quite risky to manage and may also gain or lose significant value upon conversion.
Categories of Personal Finance Assets
Now, let’s discuss different categories of personal finance assets that you may own and how they impact your overall net worth:
Vehicle
Vehicles, whether you own a car or motorbike, come in the category of your personal finance assets. Besides, if you own a recreational vehicle or even a boats, it’s also a personal asset and plays a role in calculating your overall net worth. For instance, if you own a car worth $15,000 and a boat valued at $80,000, both contribute around $95,000 to your total net worth.
Note: It’s important to know that the value of vehicles reduces over time. So, to calculate their contribution to your net worth, you should consider their current market value and not the actual purchase price.
Real Estate
Real estate is also a personal finance asset and covers everything like your primary residences, vacation homes in different spots, and other land or rental properties.
Let’s suppose you have a vacation home worth $100,000 in Hawaii, and your personal residence is around $80,000. In such a scenario, both these properties add $180,000 to your net worth.
However, when calculating your net worth, you should subtract all the liabilities, including your mortgage, to have an accurate estimation. For instance, if your property value is $80,000 but you have to pay $50,000 in mortgage, then:
Total Value: $80,000 – $50,000 = $30,000
This means that the $80,000 property only contributes $30,000 to your net worth.
Valuable Items
Many people don’t know this, but valuable items like antiques, collectibles (old coins or stamps), and even family heirlooms are also a part of your personal finance assets.
For example, if you have antique furniture worth $5,000 and an old painting worth $10,000, you’ll have an additional $15,000 in your total net worth.
But, the actual price of such valuable items can be quite tricky to determine as it depends upon condition and rarity. Therefore, it’s suggested that you get ideas from experts to know the exact figures and have an accurate net worth!
Personal Belongings
Your personal belongings like electronics, jewelry, clothing, and furniture are also your personal finance assets and make their way to your net worth. For instance, if you own a high-end laptop worth $2,000, a diamond necklace worth around $7,000, and furniture items worth $2,000, they collectively add $11,000 to your financial profile.
Retirement Accounts
Retirement accounts and plans like the 401(k) are quite popular in the US. These plans allow employees to send a portion of their income to a savings account for the future, and the money grows there tax-free.
Statistics reveal that more than 71.5 million private-sector employees in the US in 2023 had a 401(k) retirement plan or account. So, when you are estimating your net worth, you should also factor in the amount saved in your retirement account, as it’s also a personal asset.
For instance, if you have $25,000 in your 401(k) account, this amount is included directly in your net worth. Other than 401(k), other retirement funds or accounts like IRAs and pensions should also be part of your overall worth.
Other Financial Assets
Financial assets include cash, stocks, bonds, mutual funds, certificates of deposits, and much more, all of which contribute to your net value.
If you have $10,000 in mutual funds, CDs, and bonds of around $5,000, your net worth will increase by around $15,000.
The best part about these financial assets is that they are more liquid, which means they are quickly converted into cash and even grow in value over time via interests and dividends.
Intellectual Property
While it may come as a surprise to you, intellectual property like copyrights, patents, and trademarks are also a type of personal finance asset. However, this is only possible when they are owned by an individual and not associated with any business or organization.Financial assets include cash, stocks, bonds, mutual funds, certificates of deposits, and much more, all of which contribute to your net value.
If you have $10,000 in mutual funds, CDs, and bonds of around $5,000, your net worth will increase by around $15,000.
The best part about these financial assets is that they are more liquid, which means they are quickly converted into cash and even grow in value over time via interests and dividends.
How to Manage Personal Finance Assets?
Now that you fully understand the various types of personal finance assets, you must be wondering how you can manage them. If so, here are some tips that make the whole process easy for you:
- Document All Your Assets: Firstly, you should track and document all your assets, including cash, bonds, vehicles, real estate, and other belongings. Write down their market value and update it over time to maintain accurate records.
- Diversify Your Portfolio: When you put all your money and efforts into one asset, you are at a higher risk of financial loss if the asset value declines. For instance, if you invest all your cash into stocks and the market crashes, your entire net worth will see a hit. So, the best way to manage your assets is to diversify your portfolio across bonds, stocks, and real estate. This ensures that if one asset underperforms, others may balance out the loss.
- Get Insurance: You should also get insurance for all your personal finance assets to safeguard yourself against unexpected losses like fire damaging your belongings can be covered.
- Reduce Liabilities: Another way to build and manage your personal finance assets is to reduce liabilities. By liabilities, we mean your loans, credit card debts, and mortgages that may impact your financial health and credit score.
- Hire a Personal Financial Advisor: Sometimes, making all financial decisions by yourself can be quite overwhelming, and we perfectly understand this. Therefore, one of the best personal finance asset management tips is to hire a personal finance advisor. You’ll get expert tips on increasing the value of your assets and making smart investments.
If managing and tracking all your expenses manually is a hassle, you should rely on advanced technological solutions to do so. For instance, apps or tools like AssetPanda and Manage Engine make it easy for you to manage, track, and optimize your assets in the best way
How to Determine the Value of Personal Finance Assets?
If you are unable to calculate the accurate value of your personal finance assets, don’t fret, as the following tips will help you in this regard:
- You should start by recording all your inventory or personal finance assets like your vehicles, bank accounts, properties, savings, and other valuable items.
- Now, estimate the total value of each asset. For instance, your car can be worth $50,000, your house around $100,000, and the jewelry worth $80,000. However, while noting the prices, don’t write the actual purchase price; do a market survey and know what assets have appreciated or depreciated over time.
- Add the market prices of all your assets. Looking at the example above, it can be around $230,000.
- Next, make a list of liabilities or the amount you owe to different people or associations. The liabilities may include:
- Loans you took for study, medical bills, or any other expense
- Unpaid credit card debt
- Mortgage that you got to buy a house or renovate it
- Deduct your liabilities from your assets to know your actual net worth or value of financial assets.
For instance, if your total assets are valued at around $230,000 and your liabilities are $80,000, then your total value will be:
Total Personal Finance Assets Value: Sum of Assets Price – Liabilities or Money Owed
Total Personal Finance Assets Value= $230,000 – $80,000
Total Personal Finance Assets Value = $150,000
Difference Between Personal and Business Finance Assets
Many people often confuse personal and business finance assets. If you are one of them, here are some differences that can eliminate such confusion easily:
- Definition: Personal finance assets are those owned by an individual or household. Business assets, as the name implies, are owned by businesses and organizations.
- Assets: The personal assets comprise real estate, vehicles, jewelry, cash, and other valuable items. On the other hand, business assets include:
- Account receivables: Money expected to be paid back by customers within a specific period.
- Cash: CDs, treasury bills, and bank accounts.
- Inventory: Raw materials, work in progress, and finished products
- Equipment: Forklifts, manufacturing, and packaging machinery
- Source of Funding: Personal finance assets are typically acquired by using personal funds or loans extended for individuals. Business assets are purchased by using business capital, which can come from revenue, investments, and loans.
The taxation regulations are also different for business assets than personal assets. These assets must be on the business balance sheet to get an idea of the company’s value.
On a company’s balance sheet, all business assets are divided into two main categories: current and fixed.
Current assets are those that can be converted into cash within one operating cycle or fiscal year. On the contrary, fixed assets refer to tangible assets like property, plant, and equipment that are hard to convert into cash.
FAQs
Yes, gold is a personal finance asset. Whether it’s in the form of jewelry like a necklace or ring or in coins, its value contributes to your overall net worth. However, you should know that gold value fluctuates over time, so consider the market price before adding it to your asset sheet.
No, your salary isn’t a personal asset. But the money you save or invest from your salary is your asset. For instance, you can use your salary to buy stocks, bonds, vehicles, or even keep something aside in the retirement fund.
It’s suggested that you update the value of your assets at least once a year or more frequently. Especially if you learn about major fluctuations in the real estate market or stock prices, you should conduct an immediate revaluation of your assets. For businesses, it’s ideal to update the balance sheet once a month to have clarity about the financial standing.
Yes, family heirlooms having monetary value, whether it’s jewelry, pieces of art, or antique pieces, are considered personal finance assets and contribute to your overall net worth.
Conclusion
It’s important to have clear information about all your personal finance assets, their value, and all your liabilities to assess your financial condition. Another way you can judge your financial health is through a credit report. Don’t know where to get one? PFScores is the best option!
It takes a 360-degree view of all your spending, savings, and risk management, telling you how well you are managing your finances.
So, why wait? Get your financial health score via PFScores today and make quick decisions to improve your score!