Assets

A couple of months ago I shared with you that I still drive my very first car.  She’s approximately a decade old now, but she still hasn’t had any engine problems and I haven’t made payments in over five years.  Oh, and one more thing, she’s still shiny.

Some people see cars as an investment.  Maybe they think that pretty little mode of transportation is going to become a classic and one day they’ll be able to sell it for a nice profit.  Most of us, however, aren’t that lucky, and unless we want to retire in our cars (as in sleeping in them), our cars are not an investment.

It's funny to think of people in terms of how much they are worth, but in finance, our monetary worth is calculated all the time.  A person's financial worth, or net worth, is a tool used in finance to determine the dangers or benefits a bank, credit card, or lending company may experience in lending a person money.  In personal finance, calculating and keeping track of your own net worth can help you get on track, stay on track or attain financial goals, so net worth becomes as important a tool for individuals as it is for financial institutions.

How is Net Worth Calculated?

In light of the recent housing market crash, the early 2000’s "dot com" crash, and each of the stock market crashes that followed, we should learn to be cautious of asset bubbles.  These bubbles become dangerous to investors because the larger the asset price increase, the larger the bursting bubble and the larger the losses. What do we need to know to protect ourselves from asset bubbles?

You know our mantra -- knowledge is power when it comes to your finances, and you can't be in the game unless you know the lingo. We hear the words "asset," "liquid asset," and "depreciating asset" thrown around a lot -- now's the time to get a handle on exactly what those terms mean.