Finance Basics; Assets & Equity

Written by Marcus

For many young adults, the thought of managing their finances is intimidating. As a college student myself, I understand how stressful finances can be. Managing student loan debt, car payments, utility bills, rent and so much more causes many of us to feel overwhelmed.  Over the years, I have learned that finances don’t have to be stressful. In fact, being able to manage your finances with confidence is actually quite empowering.  Before you can take control of your finances and become confident in your money management, there are a few basic things that you should know.

What is an Asset?

An asset can have a multitude of meanings depending on the circumstance or context in which the term is being used. However, for the purposes of your personal financial accounting, an asset is any resource, tangible or intangible,  which is owned or controlled by you that can produce positive economic value.

Identifying Assets?

Assets can be classified into two separate categories, tangible and intangible. Tangible assets are physical and often easy to evaluate. Common tangible assets that a young person may have include vehicles, currency, furniture etc. Intangible assets rarely posses physical qualities and can be harder to evaluate. Common intangible assets that a young person may include patents, permits, brand names, domain names, licences, etc.

To identify whether an asset you have is tangible or intangible you can visit YourDictionary.com

What is Equity?

The word equity is most commonly found in the field of finance.  In terms of finance, equity is ownership of assets that may have debts or other liabilities attached to them. To calculate equity, you simply subtract your liabilities from the overall value of an asset. For example, your car is an asset and if the value of your car is $20,000 but, you owe $5,000 on the auto loan you used to purchase the car, you have 15,000 in equity.

Positive Equity Vs. Negative Equity

Equity can be separated into two different types. There is positive equity and negative equity. Positive equity is when you have an asset that is worth more than the liabilities or amount you owe, (owning a $20,000 car, but only owing $5,000 on the loan). Negative equity is when your asset is worth less than the amount you owe (owning a $20,000 car, but owing $25,000 on the loan). Negative equity is commonly referred to as being “underwater” or “upside down”.  If you are smart with your finances, investments, and money management then you can avoid accumulating negative equity.

Why do Finances Matter?

As young people, managing your finances isn’t always the most fun or entertaining thing to do, but it is important.  As we transition out of our childhood homes and begin gaining financial independence, it is imperative that we understand how finances work so that we do not get taken advantage of and avoid making bad investments. Young people like myself are in an exciting stage of their lives. The financial decisions we make at this point in time can have significant impacts on our future, so being smart with your finances is crucial.

#Finance #Money #Assets #Equity

 

Edited by Garrett