Sometime ago, we talked about assets and liabilities when we discussed Net Worth. But can we discuss it in a little more detail now?
Sure we can! Assets are things that you own, and can be sold to get money. And liabilities are things that you owe someone.
Can you give me some examples of assets and liabilities?
Okay. The house, car, jewelry and stocks you own are all assets. These are tangible assets. They are physical things that you can touch and hold. There could also be intangible assets – like copyrights, trademarks or patents, which are intellectual property.
On the other hand, money borrowed by you – like a car loan, student loan, credit card debt and mortgage are all liabilities. Remember, if you have bought a house on a mortgage, the house is still your asset, but the remaining mortgage on the house is your liability.
Well, do all assets appreciate in value?
Not necessarily. Many assets, like a house or stocks, can go up or down in value, whereas others like a car usually depreciate in value over time.
Can something be a liability for one person, but an asset for another person? I mean, can one person’s liability be another person’s asset?
That’s an excellent question Sooper Cooper! Yes, it is certainly possible.
For example, if I lend you $10, that loan is a liability for you because that’s the money you owe me. But it is an asset for me, because it is my money and would come back to me when you repay – hopefully!!