What is an asset?
February 28, 2023 4 min read
An asset is something that has value. Liabilities are things that are owed, like debts. And knowing the value of your assets versus the value of your liabilities can tell you your net worth, one measure of financial health.
Learn more about what assets and liabilities are, why they matter and how to calculate your net worth.
- Assets are things you own that have value.
- Assets can include things like property, cash, investments, jewelry, art and collectibles.
- Liabilities are things that are owed, like debts.
- Liabilities can include things like student loans, auto loans, mortgages and credit card debt.
- You can calculate your net worth by subtracting the total value of your liabilities from the total value of your assets.
The U.S. Securities and Exchange Commission says that assets are “any tangible or intangible item that has value in an exchange.” Simply put, assets are things people or businesses own that have monetary value.
Types of assets
Assets can be broken down into two categories: personal assets and business assets.
Personal assets belong to an individual or household. They might include:
Business assets are owned by companies. The U.S. Small Business Administration says there are three types of business assets:
- Tangible assets are items like vehicles, equipment, office buildings or warehouses. Typically, tangible assets are things used in regular operations. They also may lose value over time. For example, a company vehicle is a tangible asset that may depreciate in value every year.
- Intangible assets are assets you can’t see or touch, like brand recognition or company reputation.
- Intellectual property is a type of intangible asset that’s often protected by a trademark or copyright. Assets like patents, software and domain names are considered intellectual property.
What are liabilities?
Liabilities are things that are owed. You can think of them as the opposite of assets.
Personal liabilities might include different kinds of debt:
- Personal loans
- Student loans
- Auto loans
- Credit card debt
Business liabilities might include any debts and loans plus things like unpaid employee wages and utility bills.
Why do assets matter?
Assets may come into play when applying for a loan, like a mortgage or car loan. Lenders might consider an applicant’s assets during the approval process. And some lenders might even allow people to use certain assets as collateral for certain loans.
If your total assets are worth more than your liabilities, you have a positive net worth. But if you have a negative net worth—meaning you owe more than you own—it could indicate that your finances need some work.
How to calculate net worth
You can calculate your net worth by following a few steps.
First, add up the value of all your assets. Then, add up the value of all your liabilities. Next, subtract your total liabilities from your total assets. That gives you your net worth.
Keep in mind that your net worth can change as the values of your assets and liabilities change. For example, the market value of your house might increase or decrease over time. Or you might take on or pay off debt over time.
Still have questions about how assets work? Here are the answers to some frequently asked questions about assets.
Is cash an asset?
Cash is a type of asset. In this context, cash might include physical money and funds in checking and savings accounts, retirement accounts, and investment accounts.
Is land an asset?
Land and other types of real estate, including buildings, are generally considered assets.
What is a short-term asset?
Short-term assets are typically business assets that are held for a year or less before they’re converted into cash. Short-term assets may also be referred to as current assets.
Assets in a nutshell
Understanding what assets are and why they matter can help you calculate your net worth and get a picture of your financial health.
If you want to learn more about how assets work, check out this guide to liquidity.