Calculating Your Current Asset Value
A key piece of financial wellness is taking the time to calculate and know where you stand, but how can you estimate that on any given day? While it may sound daunting, a good way to begin is by making a list of your assets. An asset is something you own or possess that has value. From your home to cars to retirement accounts, when you add up all of your assets you can get a clearer understanding of your full financial picture.
Why Would You Want to Calculate Your Current Asset Value?
Whether you are looking to get a loan or just want to track your own progress, it is important to keep a critical eye on your assets as well as your total net worth. While your asset values may shift, having a general idea is recommended before you make a financial move. This calculation can help you decide on buying a new car, investment property or even just give you a sense of financial stability.
Is There a Difference Between Current Assets and General Assets?
To make sure you count all your assets, let’s take a look at the type of assets there are. Assets are broken up into several different categories. To start, the most typical asset people think of is a liquid asset. This is cash on hand or anything that can easily be converted into cash. These can include savings and checking accounts, bonds, CDs, stocks, and mutual funds.
A current asset is similar because it is cash and other assets that you expect to be cash within a year. So, the difference is a current asset calculation will allow for a bit broader group of assets. For example, a business can count pending invoices, inventory, or even prepaid expenses as a current asset but these are not liquid yet. A non-liquid asset is something you cannot bank on selling within a time period. Examples of a non-liquid asset are a car, home or investment property. Finally, a general asset is all real estate, property or other holding that is not owed on. Perhaps you own your house outright, this would be an example of a general asset.
Is an Asset Just Anything of Value That You Own?
There is a level of practicality that comes with calculating your assets. An asset needs to have the ability to become cash on hand—it has to be sellable. If Aunt Jill’s Cadillac is on its last leg, even if you own it, it most likely would not count as an asset. However, in contrast to that example, an asset is not always a physical thing. Where the definition of an asset can get tricky is in these intangibles or partially owned assets. Take a car or home that has a current loan. These are examples of a situation where you can own a portion of something, making it part asset and part liability. If you have a mortgage, as you pay off that loan the paid portion plus any appreciation becomes equity and an asset. On the flip side, anything you owe on that loan is a liability.
What is a liability? Speaking in general terms a liability is anything you are responsible for financially. This can include mortgage and car debt, taxes and more. Just like with assets, you can have long-term and current liabilities. Current liabilities are payable in a year, while a long-term liability is any debt that will be stretched over a longer period of time.
The Most Common Types of Assets People Have
The most common assets are ones that you can most likely list off the top of your head. If you start with big to small your list can get grow pretty quickly. Things to include and most common to a person’s assets are your home, car, bank accounts, any business assets and then smaller assets like jewelry and art.
When you talk about “cash” in an asset sense, having cash assets does not mean you have a stack of bills under your mattress (of course if you do, it counts). More commonly, cash assets are help in a checking and savings account for faster access to your money. Another type of cash savings is a term deposit. This is a deposit that is relatively short-term in exchange for a higher interest rate like a CD. A CD is a term deposit because you open it and fund it without the ability to withdraw until a certain term or length of time. A good first step to calculating your assets is finding the current balances on any cash assets you hold.
Stocks, Shares and Bonds
If you have invested in the market, you will also want to consider the current value of your portfolio. This part of your asset calculation should include current stock holdings, any company shares and bonds you may hold. As you may know, the values of these assets can be volatile so it is important to bear that in mind when adding up your assets. Your portfolio can change from day to day so counting on a certain amount from a stock may be risky.
Property and Real Estate
Any financial advisor will tell you that a key component of your net worth is any property you hold. They will also tell you that real estate is a generally held as a fairly sound investment to make. Here’s why: unlike cars and technology, real estate usually appreciates as you hold it. This depends on your purchase price, market and any renovations you undertake. While we have seen some larger swings in recent years due to the market crash, large swings are not typical and real estate is an investment you can generally count on as a less risky asset to hold.
Have you ever traded-in your car when you got a new vehicle? Maybe the dealer offered you cash for your car. The trade-in value is based on what your car is worth as an asset—and pretty close to the number you should use in your calculation. You can use online resources like the Kelley Blue Book to get an idea of what your car is worth today. Of course, you must own and not lease to have any equity in your vehicles. Also, bear in mind that cars are like computers: they lose value the moment you drive off the lot.
Personal Property Such as Jewelry and Art
Collectors of fine art and jewelry will want to review their holdings when calculating assets. Whether you collect rare period jewelry or have a penchant for up and coming artists, your investments are indeed assets and need to be part of your overall total. Make sure to collect estimates on all pieces in your collection and put these numbers in a safe place to reference later. Values may change from year to year so it is also important to periodically update these estimates.
Final Steps Towards Calculating Current Assets
When you are ready to calculate your final assets, we recommend making a formal and detailed list. Work with a friend or partner to jot down everything you own, any equity, any accounts you have, etc. Once you feel you have a complete list, take the time to find the balances on accounts and record known values. If you use a spreadsheet you can easily update and add your assets.
As you build you asset list, you may stumble upon assets that you do not have a known value for. In these cases, it is ok to estimate their worth. Be pragmatic and think about what you think someone would pay today for that item. Then, put it on your to do list to get an estimate for next time.
Once you add these all up, you’ll have a pretty good idea of your current asset value. If you would like to go a step further, you can look at your net worth. Your net worth is any liabilities you have minus your total asset calculation.
As a final note, it isn’t enough to calculate your assets. If you have assets such as jewelry or property, it is important to properly protect these assets. Jewelry and art can be added to many homeowners’ insurance policies. Keeping track of what you have will help you in event of an accident. Taking a few pictures and making a binder is a simple way to keep track of these assets.
If you would like to learn more about calculating your assets, we would welcome the opportunity to discuss this with you.