Assets: What are they?

Assets 101

When it comes to finance, assets are things (tangible and non-tangible) that are of monetary value. Technically, people can be considered an asset because of the value they bring to a relationship or organization- creepy, right?

Having some is considered a plus because they are things or investments the owner can convert to cash if needed. Cash itself, of course, is an asset too.

Touched = Tangible
An asset you can touch (metaphorically, too) are tangible

• Equipment
• Corporate bonds
• Corporate stock
• Cash on hand
• Land
• Savings accounts
• Inventory

Intangible assets
Non-physical, meaning they can’t be touched

• Blueprints
• Brand recognition & names
• Domain names
• Easements
• Copyrights
• Film libraries
• Franchise agreements

Assets: What are they?

A popular turn of phrase, ‘earn and acquire assets like the rich, but spend like the poor’ isn’t possible without understanding why assets themselves are important.

Essentially, assets are important to understand and manage because they are a useful tool to leverage for financial gain.

Financial gain means choice, and in today’s economy, she who has a choice (in employment, travel, education) also has freedom.

Just like there is good debt and bad debt, there are good and bad assets.

Good assets include:

• Rental properties
• Dividend paying stocks, bonds & businesses

Bad assets include:

• Car purchases
• Unaffordable real estate purchases

An easy way to distinguish between a ‘good’ and ‘bad’ asset is to ask yourself two questions: 1) Does this appreciate, or depreciate? And 2) Does it generate a positive or negative cash flow?

Many people are tempted to purchase a home or invest in an asset simply because it fulfills one of the two considerations posed. Unfortunately, purchasing a lavish home under the misapprehension that the appreciation of the property over time makes it a good asset is a mistake. We’re sure you’ve heard the term ‘house-broke,’ and that we don’t need to remind you it’s not a place you want to go!

Additionally, using the entirety of one’s available income to pay off a high mortgage can create such a negative cash flow it’s easy to become unable to pay other debts or invest in potentially more lucrative opportunities.

This has been a Financial Literacy Month blog post from TeamClinton. We’re your friendly neighbourhood gluten-free mortgage brokers.

Have more questions? Feel free to contact us!