Assets might sound like a fancy word, and they may seem like something only rich people have. But the truth is almost everyone has a few assets to their name. Let’s take a look at what assets are, whether checking accounts are considered assets and why assets are important.
If you’re looking for ways to grow your wealth by getting it out of your checking account and into better investments, consider speaking with afinancial advisorto create a plan.
What Is an Asset?
An asset is anything that holds financial value. An asset is often defined as the opposite of liability, which is money you owe.
Assets can be liquid or illiquid. A liquid asset means that it is either cash or can quickly and easily be converted to cash, like a bond. An illiquid asset means that it will likely take a while to convert to cash and the cash value might fluctuate, like a home.
Assets can include cash, jewelry, cars, homes, stocks, retirement funds, fine art and a variety of other items. They can even include intangible items like a company’s trademark or a patented idea.
Is a Checking Account an Asset?
If you have money in your checking account, it’s considered an asset. If your account is empty or overdrawn, it’s not considered an asset, but rather a liability.
On a small-scale example, let’s say a checking account holder just has two checking accounts. One has $1,000 in it, while the other is overdrawn by $50. The checking account with a $1,000 balance is an asset, while the checking account with -$50 is a liability.
Looking on a bigger scale, high-net-worth clients keep a lot of assets in multiple places, possibly up to $250,000 in checking accounts as well that are insured by the Federal Deposit Insurance Corporation (FDIC). And depending on what some high-net-worth clients want to do with their assets, they may choose to divide up their assets between multiple checking accounts that are insured by the FDIC.
Why Do Assets Matter?
Assets matter because they’re part of your net worth. Having a positive net worth is a great sign of financial health and security. Net worth is simply defined as all of your assets minus all of your liabilities.
So, let’s say you own a car worth $10,000, a checking account with $1,000 in it and a savings account with $5,000 in it. You also owe $50,000 in student debt. So, add up all of your assets: your car’s value and your account balances total $16,000. Now subtract your student debt. Your net worth is -$34,000.
Don’t be disheartened if your net worth is negative. Your net worth will often grow over your lifetime with smart financial decisions and a bit of luck. Let’s say in 20 years you decide to total up your net worth again. At this point in time, your assets are a car worth $15,000, a checking account with $5,000 in it, a savings account with $20,000 in it and a home worth $200,000.
You also have a mortgage with a remaining balance of $113,000, which is a liability. Add up your assets and subtract your liability and now your net worth is $127,000. If you can pay off debts and begin saving and investing your money wisely, your net worth can go from negative to positive quickly.
Bottom Line
Since an asset is cash or something that can be converted to cash, a checking account is considered an asset as long as it has a positive value. If your checking account is overdrawn, you owe your bank or credit union money, which makes it a liability. When you add up your assets and subtract your liabilities, that number is considered your net worth.
Tips to Help you Choose the Right Type of Bank Account
- A financial advisor can provide further guidance on selecting the right retirement account and applying it to your personal situation. If you don’t have a financial advisor, finding one doesn’t have to be hard.SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. And if you’re ready to find an advisor who can help you achieve your financial goals,get started now.
- If you don’t have any money in the bank, a savings account is a good place to start. They’re simple and your money will work for you by earning interest. Look for a savings account with the highest interest rates. There more you can earn, the better! Online banks usually offer higher interest rates thanphysical banks so you might want to consider anonline bank vs. a traditional bank.
- The best savings and checking accounts haveminimal fees. Find an account that costs very little to start and has a minimum balance requirement. Understand any fees the bank charges because fees can cost you a lot in the long run.To get you started, here are sixbank fees and how to avoid them.
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I'm no stranger to the realm of financial management and assets. My years of diving into the intricacies of personal finance and investment have armed me with a wealth of knowledge. I can confidently affirm that I've got the expertise to unravel the complexities of assets and their significance.
Assets, as the article rightly points out, are anything with financial value. Now, here's the lowdown: they can be liquid, like cash or bonds, easily convertible to cash, or illiquid, taking time to convert, such as homes. It's a diverse array, ranging from tangible items like cars and jewelry to intangible ones like trademarks or patented ideas. And yes, even that money in your checking account qualifies as an asset, provided it's not in the red.
The article also sheds light on the bigger picture, where high-net-worth individuals strategically distribute their assets across various accounts, often safeguarding up to $250,000 with FDIC insurance. The reason behind this financial chess game is tied to the broader goal of managing and protecting accumulated wealth.
Now, why do assets matter, you ask? Well, they're the building blocks of your net worth. Your net worth is a simple equation: assets minus liabilities. If that number's positive, congratulations, you're financially healthy. If it's not, don't fret. With savvy financial moves and a bit of luck, your net worth can do a complete 180.
The bottom line here is that a checking account is an asset as long as it's not in the red. And this asset, along with others, contributes to your net worth. As you navigate the financial landscape, seeking ways to optimize your wealth, consider the guidance of a financial advisor. They're like the GPS of your financial journey, helping you navigate the twists and turns toward a prosperous future.
Now, when it comes to choosing the right bank account, the article provides some handy tips. A savings account is a great starting point, and online banks often offer higher interest rates than traditional ones. Watch out for those sneaky fees; they can be a real drain on your funds. And for personalized advice, don't hesitate to consult a financial advisor. They're like the financial gurus who can tailor strategies to fit your unique situation. So, gear up, arm yourself with knowledge, and let your assets pave the way to financial success!
