Assets and liabilities, with examples
Net worth rests on two lists. Sorting an item into the right one is usually obvious, with a few exceptions worth understanding.
Assets
Things you own that hold value.
- Liquid: checking, savings, money market
- Invested: brokerage accounts, retirement accounts, index funds, bonds
- Real: a home, land, a vehicle
- Business: your ownership stake, if you can value it
Liabilities
Amounts you owe.
- Revolving: credit card balances
- Installment: auto, student and personal loans
- Secured: a mortgage or home equity line
- Other: taxes owed, money borrowed from family
Gray areas
A car
It is an asset at what it would sell for today, which is almost always less than you paid. The loan against it is a separate liability.
A home
Count the estimated market value as an asset and the remaining mortgage as a liability. The difference is your equity.
A retirement account
It is an asset, though some count it at its after-tax value, since withdrawals are typically taxed.
Rent, utilities and subscriptions
These are ongoing expenses rather than liabilities. They belong in cash flow, not net worth.
Why the split matters
Two people with the same net worth can be in very different positions: one holds modest assets and little debt, the other holds large assets and large debt. The ratio between the two lists, not only the difference, shows how resilient a position is.