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What really is an asset?

#finance May 06, 2021

In an earlier article, I asked you to calculate your net worth by subtracting your liabilities from your assets.


What is an asset? The simplest definition is an object or financial product that can be converted (sold) into money.


But the question is more complicated than that. 


Take your vehicle, for instance. While it may be sold, you won’t ever get what you paid for it. Every year you own and drive it, the value depreciates. 


Your personal residence is another example. Without constant upkeep, repairs, and renovations to keep it current, its value may wither. If you sell it, will you really pocket the profits while you downsize, or will you be tempted to get a different home of equal or greater value?


Cash is king. 


One definition of an asset is anything in your life that generates positive cash flow with minimal or no effort on the owner's part.