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2020 has been a year of gains and (many) losses. But with many staying home, people have been using this time to learn more about their financials; trimming excess expenses, and trying to do a better job with building their net worth. So is a car an asset or a liability?
Is a Car an Asset or a Liability?
One thing that comes up in the discussion often is your car. Is a car considered an asset or a liability?
Well, it may be a bit more complicated than that. If you are trying to answer this question for yourself, Here are some things to consider about your situation and your vehicle.
Do you know how to prepare your car for your next road trip? Keep reading to know about the topic.
Assets versus Liabilities
When trying to account for your net worth, the most basic equation is Net Worth=Assets-Liabilities. So the object is to have fewer liabilities than you do assets. But you must first be able to tell the difference between the two.
What Are the Assets?
An asset is an item that you own that can provide future economic benefit. Essentially, something that can appreciate in value, or make more money for you in the future.
Examples of assets would be things like real estate property, stocks and bonds, collectibles, jewelry, cars, etc.
What Are the Liabilities?
A liability in contrast is something you owe to other individuals or institutions, usually sums of money and can be settled over time through the transfer of economic benefits such as money but also goods and/or services.
Liabilities can be things like loans (student, auto, mortgages, etc.) and can become problematic if they exceed your asst column. That’s why its important to keep liabilities under control.
Liabilities are not to be confused with expenses. Expenses are whats paid for you to live, whereas liabilities are what is owed for debts.
Is a Car Considered an Asset?
So if you notice, your car can fit into both categories. So which one is it? Simply put, your car is what is considered a depreciating asset. Depreciating assets are assets that have a limited life and can be expected to decline in value over time.
A car is considered this because it is widely known that when you buy a new car, as soon as you drive it off the lot, it automatically depreciates. It can depreciate up to 30% of its original value by the end of the first year, and in five years your vehicle can lose over 50% of its initial value.
Most people would consider a car a liability with all expenses involved. However, it is an asset because of its ability to transport you to other places to make money, and you can gain more on an equity auto loan.
Build Your Wealth
Is a car considered an asset? Well, it depends on who you ask. But you can certainly make your vehicle a better asset than a depreciating one. Having financial literacy and building your wealth is important.
Don’t drown in your debts is a car an asset and liabilities, and make your car work for you. You can always have more than one stream of income.
For other great articles about automotive, be sure to visit the rest of our blog.