Business and Accounting:
What is an Asset?
An asset is a possession that can be evaluated and assessed a dollar value, a financial value. Assets come in all kinds of forms. Your car, your home, your education, and your clothes are assets. We generally do not think in terms of assets from a personal prospective; but these possessions are nonetheless assets.
As an individual, you wouldn't normally create financial statements that would give you a snapshot of your personal net worth, unless you were about to borrow money, start a business, or begin to plan for your retirement. As a young person, you would give little thought to your personal net worth, therefore terms such as assets and liabilities seem like a foreign language in a foreign, far away land. But let me assure you, the day will shortly arrive, when you will ponder your net worth, and you will need to determine the value of your personal assets.
Beyond the personal consideration, let's say you have acquired that four-year degree (also an asset) and you're ready to start your own business. Do you know the first thing the bank is going to ask you to produce? A net worth statement. A personal net worth statement. Why? Because let's face it, what else do you have that would serve as collateral for your business loan? Ahhh. A business loan; this is a liability. Any loan, of any kind, is a liability. Why is it a liability? It is a liability because you must repay the amount of the loan. You are responsible for the debt.
Assets are goods that are worth money. Plain and simple; no frills, no further words are needed. If you are frugal (that means saving), you can acquire quite an arsenal of assets at a young age. Many of us, however, tend to use our income and extra finances in our effort to enjoy life. It is often only as we begin to look later in life, that our assets, and more importantly, our retirement assets begin to develop an important position in our lives.
What about the assets we have that we can't see or touch or feel or hear? What about our experience, our education, our values? What about our potential ideas and inventions? What types of assets are these? These "things" are indeed assets and as we begin our journey into the 21st century, more and more often, they are factored into our net worth statements as real assets. For many years, some economists have argued for their inclusion into the asset picture on a personal and business level. It is only recently however, when so much emphasis has been placed on our management abilities, our business skills, and our work experience that the possibility of including these intangibles has created heated debate.
What do you think? Do you think your knowledge and intellectual ability is an asset?
Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.