We’ve discussed before whether or not your house is an asset or a liability in other articles, but now we are looking at whether your car is an asset or liability as well. Your car is on your net worth statement, right? So, it must be an asset. But just like with a house, it depends on what your definition of an asset is. Your car is typically a large purchase. It can cost thousands, and sometimes tens of thousands of dollars. Most people typically consider cars an asset because you can sell it without losing money.
Image via Tax Credits on Flickr
A Car is an Asset to Most People
Because you can sell your car for a decent amount, it’s usually considered an asset. Banks will consider your car an asset when they are assessing whether or not they will give you a car loan. This is why your application will ask whether you have a car, and how much your car is worth. However, not everything that you can sell is an asset.
The General Definition of an Asset
As we’ve discussed before, the definition of an asset is something that has value, or that aids the owner of the asset in making money. We’re not looking at whether or not the thing is an expense. A car is an expense, but many assets also come with expenses.
“A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.”
“Assets are bought to increase the value of a firm or benefit the firm’s operations. You can think of an asset as something that can generate cash flow, regardless of whether it’s a company’s manufacturing equipment or an individual’s rental apartment.”
The defining difference between something that is an asset rather than a liability then is whether or not it will provide benefit. Furthermore, it is a question of whether or not that particular thing increases the person (firm’s) value and generates cash.
With that in mind..
Is Your Car an Asset, or a Liability?
It sounds like your car isn’t an asset. By definition, your home isn’t an asset (not your primary living space) because you live in it. It doesn’t make you money, and it doesn’t add value to you (you need somewhere to live whether or not you are renting or you own).
Does your car make you money? Well, it gets you to and from work. That helps you make money. But you could use public transportation for the same purpose.
Unless you are a pizza delivery driver, Uber driver, driving school instructor, or any other profession that is based in a vehicle, a vehicle is not usually tied directly to your ability to make money. Even if you are one of these things, your primary car is likely not an asset; you usually would use a different vehicle for work purposes.
Sure, your car adds value. It saves you time, lets you drop your kids off at school and sports, and provides you with a sense of safety. However, with insurance, fuel, maintenance, mileage, and all of the other costs that accompany car ownership, the costs almost always outweigh the monetary value of a car.
Many consider a car a depreciating asset, because this is how it shows on company balance sheets. For companies, however, vehicles can be an asset (however depreciating they may be.) For individuals, they can be more of a liability than an asset.
Protect and Build Your Assets
Taking stock of all your assets is an important step in determining your net worth and planning for the future. Once you identify all your assets, you can better protect yourself from natural disasters, divorce, or other unforeseen misfortunes. Some people choose to leverage various assets to ensure they have enough cash on hand in case of emergencies. But first you must inventory all cash, tangible and intangible assets, liquid and fixed assets, fixed-income assets and equity in your name.
Incidentally, if you are interested in learning the basics about how to accumulate assets, I recommend that you pick up a copy of Robert Kiyosaki’s Rich Dad Poor Dad. The book has sold millions of copies, so it is insanely popular.
For more on assets, and how to create some of your own, check out these great articles.
Do you consider your car an asset, or a liability? Do you include your car in your net worth calculation?