assets

Is Your Car an Asset or a Liability?

We’ve discussed before whether or not your house is an asset or a liability in other articles, but now we are looking at whether your car is an asset or liability as well. Your car is on your net worth statement, right? So, it must be an asset. But just like with a house, it depends on what your definition of an asset is. Your car is typically a large purchase. It can cost thousands, and sometimes tens of thousands of dollars. Most people typically consider cars an asset because you can sell it without losing money.is your vehicle an asset?

Image via Tax Credits on Flickr

A Car is an Asset to Most People

Because you can sell your car for a decent amount, it’s usually considered an asset. Banks will consider your car an asset when they are assessing whether or not they will give you a car loan. This is why your application will ask whether you have a car, and how much your car is worth. However, not everything that you can sell is an asset.

The General Definition of an Asset

As we’ve discussed before, the definition of an asset is something that has value,  or that aids the owner of the asset in making money. We’re not looking at whether or not the thing is an expense. A car is an expense, but many assets also come with expenses.

Investopedia defines an asset as: 

“A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.”

 “Assets are bought to increase the value of a firm or benefit the firm’s operations. You can think of an asset as something that can generate cash flow, regardless of whether it’s a company’s manufacturing equipment or an individual’s rental apartment.”

The defining difference between something that is an asset rather than a liability then is whether or not it will provide benefit. Furthermore, it is a question of whether or not that particular thing increases the person (firm’s) value and generates cash.

With that in mind..

Is Your Car an Asset, or a Liability?

It sounds like your car isn’t an asset. By definition, your home isn’t an asset (not your primary living space) because you live in it. It doesn’t make you money, and it doesn’t add value to you (you need somewhere to live whether or not you are renting or you own).

Does your car make you money? Well, it gets you to and from work. That helps you make money. But you could use public transportation for the same purpose.

Unless you are a pizza delivery driver, Uber driver, driving school instructor, or any other profession that is based in a vehicle, a vehicle is not usually tied directly to your ability to make money. Even if you are one of these things, your primary car is likely not an asset; you usually would use a different vehicle for work purposes.

Sure, your car adds value. It saves you time, lets you drop your kids off at school and sports, and provides you with a sense of safety. However, with insurance, fuel, maintenance, mileage, and all of the other costs that accompany car ownership, the costs almost always outweigh the monetary value of a car.

Many consider a car a depreciating asset, because this is how it shows on company balance sheets. For companies, however, vehicles can be an asset (however depreciating they may be.) For individuals, they can be more of a liability than an asset.

Protect and Build Your Assets

Taking stock of all your assets is an important step in determining your net worth and planning for the future. Once you identify all your assets, you can better protect yourself from natural disasters, divorce, or other unforeseen misfortunes. Some people choose to leverage various assets to ensure they have enough cash on hand in case of emergencies. But first you must inventory all cash, tangible and intangible assets, liquid and fixed assets, fixed-income assets and equity in your name.

Incidentally, if you are interested in learning the basics about how to accumulate assets, I recommend that you pick up a copy of Robert Kiyosaki’s Rich Dad Poor Dad. The book has sold millions of copies, so it is insanely popular.

For more on assets, and how to create some of your own, check out these great articles.

Are you really aware of an asset meaning?
Is Your House an Asset or a Liability?
4 Ways To Improve Your Net Worth

Do you consider your car an asset, or a liability? Do you include your car in your net worth calculation?

Is Your Car an Asset or a Liability?

Are you really aware of an asset meaning?

Whether you are a numbers person or not, finances become a major part of your life as you continue to propel into adulthood. As you are consistently reminded of the importance of investments, it is also imperative to understand the difference between an asset and a liability, especially if you are making purchases with the intent to create value.

So, what is the definition and meaning of an asset?

According to Dictionary.com, an asset is “a single item of ownership having exchange value.” Google.com also defines it as “property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.”

Of course, other definitions include a balance sheet for liabilities and capital as well as generalized to anything that is useful or valuable.

Robert Kiyosaki, American businessman, investor and self-help author, puts the description of the meaning of an asset a little more simply:

Asset Meaning

His examples include real estate, businesses that don’t require you to work at them, and stocks and bonds as mentioned in his book, “Rich Dad, Poor Dad.”

However, certain items you own can also be considered an asset, even within your own home.

Conversely, these same articles could be liabilities. Liabilities, as defined by Dictionary.com are “moneys owed; debts or pecuniary obligations.” Kiyosaki explains them as any purchase that takes money out of your pocket.

As you dive into the world of researching which of your household items put money in your pocket and which are a straight cost, you’ll need to keep these definitions in mind. A major issue is that many people believe their goods are profitable when, in reality, they are not as valuable as they think or, worse, they are a bit of a disadvantage to the consumer’s pocket.

While this can be an often confusing topic, Suburban Finance is here to help clear things up. Below are common possessions that you may not have realized were assets (or liabilities):

  • Your car. Some will actually deem your vehicle a more of a liability due to the amount of expenses that go into them over time. These include gas, maintenance, insurance and a loan. A car can surely be an asset, though, if the value is greater than the amount due on it. It is also classified in such terms as it can be sold for cash; however, it continuously devalues over time, not excluding the minute you drive it off the lot. While you can add your automobile to your overall net worth, you have to also deduct the liabilities on it when doing so along with determining the depreciating value. (Equally, include all liabilities in your total net worth calculation.) Many dispute on this topic, but you need to be able to establish the worth of the vehicle (trade-in value, what you gain over time, etc.) and the expenses you will accrue.
  • Fine art. Art and other collectibles, such as antiques, can add a considerable amount to your net worth. Of course, this type of purchase does not come without research. The rarer a piece, the more valuable; but the art industry is also very erratic. This is not an easy money-maker, even though its value can be limitless. This can be also be an initial expensive investment on top of an ongoing venture, since purchasing the original will be worth more than a reproduction. If you already have some items that you believe to have value, whether a reproduction or not, you should invest to have them appraised. This will be the best way to ensure you have a strong asset in your hands. Furthermore, you should be aware of the fact that home owner’s insurance may not cover your collectibles without special coverage.
  • Furnishings and appliances. Furniture, appliances and even clothes are considered what is known as non-earning or non-financial assets. These are items you own but do not provide extra revenue. One could say that appliances could also be considered an earning asset due to their efficiency in saving you time, which creates more opportunities for you to make money. If you are purchasing certain goods with the intention of investing, such as antique furniture or collectible items, you will (as mentioned above) want to consider getting them evaluated for value. While most household goods won’t necessarily produce more income, they do still represent part of your net worth. They are also useful for cases of bankruptcy and replacement cost in your insurance policy.
  • Guns. Firearm purchases have been on the rise, particularly with the gun-control laws. These purchases include both collectibles and commercial. Many investors are anticipating tighter regulations in the near future while others are concerned of the return of the federal assault weapons ban, which means any firearms in the banned categories will be illegal to produce. Those in circulation will, though, still be able to purchased and exchange hands with a fixed supply level. These commodities are very valuable to each owner, and they tend to appreciate over time. Guns are an investment that has a price dependent upon supply and demand. While still a strong subject, guns are, indeed, considered an asset due to their steady worth. As with any asset, they would also need to be disclosed if ever filing bankruptcy.
  • Your home. While common thought is that your home would be measured as an asset, Kiyosaki actually considers this to be more a liability due to the time and expenses spent on maintenance, mortgage payments, insurance, the home’s devaluation and the like. It’s likely that you may not sell the home for what it is worth due to still owning on the loan when you move. Renting a room, though, can help to turn this non-earning asset into a financial gain. Also, purchasing homes with the intent to rent to others would also turn home-buying into an asset. This is, of course, depending on who you ask. In the business world, homes are typically considered more of a liability due to costs in time and money. In spite of this, most homeowners will think of their house as a strong resource due to owning the property.

In summary, what is considered an asset and liability is often debated and dependent upon whom you ask. Just remember to keep in mind financial trends and potential value in items before attempting to turn household products into money in your pocket.