Financial Literacy – Know Your Asset and Liability

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Your biggest asset is your earning capability; your best resource is your time. It means that, all of us have what must be done to boost our net worth by increasing our assets and also eliminate our liabilities. However what are personal assets and liabilities from financial perspective?

When you make an application for an unsecured loan from any kind of loan provider, they will go through a few questions to determine your credit worthiness for example your capability to support the loan settlement by taking a look at your revenue and expenditure, determining whether your finances run on surplus or deficit. When you make application for a secured loan, your lender might want to know not just your credit value but also your net worth by finding out your assets and also liabilities.

An asset is everything possessed by a person (or even organization) which can generate income, this means that it is anything which has economic value that could be transformed into cash; say for example a car, property, cash, skills, bonds, securities etc.

Liability on the other hand is something that takes cash from a person; say for example a loan, store cards, credit cards, mortgage etc. This is also defined as an obligation which binds a person (or even organization) to settle a debt.

Many people consider their houses (purchased on mortgage loan as main domicile property is an asset. Actually, it is just an asset in a long-term (let’s assume that in the long run the property value might increase, we have all seen in the current recession, property values have been put into negative equity for example, purchase value becoming higher than current property value). In a short-term though, the home you reside in and also the vehicle that you drive is regarded as a liability because it eliminates your income without any short term returns.

When you visit  you can learn more about the  personal assets vs liabilities.

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