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Our Guide on Everything You Need to Know About Assets

10/13/2020

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Mike Crews, Universal Banker III at Town and Country Bank, is spearheading a ten-part financial literacy seminar with the Springfield Housing Authority (SHA). Once a month, Mike meets virtually with SHA participants and shares with them the knowledge necessary to meet their financial goals.

In September’s seminar, Mike spoke about how building assets can help ensure financial security and provide a peaceful state of mind, especially during tumultuous times like a pandemic. An asset is something you own and can make decisions about. This can include money, stocks, trademarks, or anything else you own that can be exchanged for money.

“A common misconception about assets is that they are only obtainable for the financially wealthy, and that simply isn’t true,” Mike says. “Assets can and should be attainable to everyone. I love teaching about productive assets in particular because it’s all about investing in yourself. By investing in yourself, you open the door to more assets and opportunities and will eventually reach a place of financial security.”

Types of Assets

Assets can be broken down into three categories: physical, financial, and productive.

Physical assets include tangible objects like a house, car, business, and more. Physical assets are valued based on how much they’re worth. For example, if a person buys a house for $100,000, they own a physical asset valued at that same price.

Financial assets are liquid assets and include items like cash, money in a bank account, and mutual funds. Any money saved in CDs, invested in the stock market, or turned into cash quickly is considered a financial asset. Unlike physical assets, financial assets reflect the supply-and-demand components of the market and do not always have a set value. Stocks, for example, fluctuate frequently so the value of the stock is constantly changing.

Productive assets, the final types of asset, aren’t tangible but are still incredibly valuable because they open the door for higher returns. For example, renting out a house is considered a productive asset because you continually make money off of the renters and can eventually sell the house should the need arise. Stocks are also considered productive assets because of the interest earned. Other examples include education, skill sets, trademarks, and land. Often, productive assets help you produce more assets. For example, investing in education can help you earn a higher salary, leading to more financial and physical assets. Credit is also considered a productive asset. In other words, the better your credit score, the more financial flexibility you have.  

Assets and Net Worth

Understanding your assets and their value is key to understanding your total financial net worth, and in turn, determining the measure of your financial stability. Usually, people need to borrow money to gain an asset. Many people take out loans to help them buy a house or pay for education, and in doing so, accumulate debt that remains until the loan is completely paid off. To calculate your net worth, subtract any debt from the total sum of your assets.

Positive net worth means that the value of your assets outweighs all existing debt, with room to spare. A net worth of 0 means that the value of your assets is equal to that of your debt. Having a negative net worth means your debt outweighs the value of your assets. While the latter two are not ideal, there are always ways to increase your net worth. These include:

  • Spend less. Easier said than done but buying generic brands over name brands and cutting back on eating out keeps a few more dollars in your pocket that will eventually start to add up.
  • Stay under budget. Say you need a new car, and you have $3,000 saved up for it. Buying a car that totals to $2,500 keeps you under budget and allows you to put the remaining $500 in savings.
  • Look for interest. Do your research and look for accounts that allow you to accumulate interest. While it may not be much at first, as the money in the account grows, so will the interest you earn.
  • Look ahead. As you begin saving more and more, it’s worth it to start investing in more assets. Remember, your net worth is the sum of your debts subtracted from the sum of the value of your assets. The more assets you have, the higher your net worth can be.
  • Pay down your debts. Paying down your debts will increase your net worth and put you on the path towards financial stability.

Keep Up With Our Financial Literacy Seminars

To keep up with the topics covered in Crews' SHA financial literacy seminars, continue following our stories on our blog in the coming weeks and months!

Contact Us Today

Not sure where to start building your financial future? Visit us at one of our 11 conveniently located branches to speak with a banker about building a financial plan today!

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