Assets vs. Liabilities

When looking at your finances, it's important to note what assets and liabilities you have. In this article, we will touch on the differences between the two so you can better understand your finances.

Assets

Assets are anything you can gain profit from. There are many different types of assets and different ways you can gain profit from them.

Tangible and Intangible Assets

Tangible assets are any physical item you can gain profit from. These things include things like land, equipment, personal belongings, and more.

Intangible assets are the opposite, anything non-physical which you can gain a profit from. These can include copyright, sellable digital items, brand deals, and more.

Real Assets and Financial Assets

Real assets have an intrinsic value you can earn profit from. The intrinsic value of an item is what the actual item costs without the influence of the market. An example of an item with intrinsic value is a diamond or a car.

Financial Assets are assets that increase in price because of the market. For example, a really old car from the 1970s would cost around 10 thousand today but because of the market today, it could sell for 70 thousand.

Finding the intrinsic value of an asset can help you decide if you still want to buy it (like when it comes to stocks). If a stock has a market price lower than the intrinsic value, you are more likely to make a profit from it.

Current and Long-term Assets

Current assets are anything that can gain profit within a year. These can include small investments, money in the bank, and any tangible or intangible item that can gain profit within a year.

Long-term assets are the opposite where it is any tangible or intangible asset that will gain profit in over a year. An example could be a car or a house.

Liabilities

Liabilities are anything owned by another entity or a debt. These are things that are taking money out of your pocket. Like assets, there are current and long-term liabilities. Current liabilities are debts due within the next year. This includes taxes, operating expenses, and monthly payments.

Long-term liabilities aren’t due until at least a year later.

Both Asset and Liability?

Certain things could be considered as both assets and liabilities. It isn’t always one or the other. For example, a car could be considered an asset because you can sell it later, but it can also be considered a liability because you have to pay it off and consistently pay for maintenance. It’s good to keep track of both your assets and liabilities so you know what you're losing money from and what you can gain money from.

Recommendation

Having profitable assets is very important because that's how you will be making some of your money. It is also crucial to be making more than your liabilities or else you will forever be in debt and struggle to make a profit from your assets.

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