Most financial advice tells us that we want assets over liabilities. What exactly is an asset, and why are they important? An asset is something that will have a cash value associated with it. A cash value from an asset can have a cash value from the asset producing cash flow, an item you can sell, or investments.
An individual can have a personal asset that usually has a current or future value that that person owns. Cash or saving accounts, property, collectibles, jewelry, furniture, and investments are all examples of personal assets. Likewise, your assets are all things that you own.
Businesses also have assets that are important to their growth. Assets that businesses have usually generate income, such as machines, property, materials, and inventory. Businesses could also have assets that are patents, intellectual property, and royalties because these also produce income.
There are also fixed and current assets. A fixed asset is considered something that is a long-term asset. These will be things like property, vehicles, and things that cannot quickly be converted into cash. A current asset is considered something that you can convert into cash in one year. These will be things like cash, investments, inventory, and things that can quickly be converted into cash.
Having personal or business assets can improve your net worth. Regarding your net worth, assets improve your overall net worth. Having more assets than liability will give you a positive net worth. Having more liabilities than assets will give you a negative net worth. A mix of fixed and current assets is also important. If you ever need to convert assets into quick cash, you need to have current assets. If you want your assets in a safe place for a long period of time, you need to have fixed assets.
