What is asset management and why is it vital to understand?

September 17, 2014

Properly managing your assets can be the difference between a stress-free or stress-full future. What is asset management and why is it vital to understanding your net worth?
Definition of an asset
An asset is anything you own that has a monetary value. They can be simply listed into two categories: fixed assets and liquid assets.

  • A fixed asset is any form of asset that cannot be readily converted to cash. It needs to be valued based on current market value. Your home and car are examples. The conversion of the fixed asset into cash usually results in some loss of value.
  • A liquid asset is any form of asset that can be readily converted to cash and used for an immediate and urgent requirement. Examples are a savings account balance, mutual funds, and gold or silver.
What is asset management and why is it vital to understand?

List your assets

Once you have listed out your asset values and subtracted your liabilities, which includes such things as mortgage payments and credit card debt, you can determine your net worth.

  • Be conservative with estimates when it comes to managing assets, especially with home and vehicle values. Inflating the value of large assets may look good on paper, but will not show an accurate picture of your net worth.

Review them regularly

Doing a yearly upkeep of your financials will give you an accurate picture of your net worth, by re-examining the worth of the assets listed. For instance, house prices can devalue depending on many types of circumstances, such as fluctuations in the housing market. The same holds true for any other fixed assets on your list.

  • You can offset this by increasing the value of your home by doing needed renovations, and therefore upgrading its value.

The same can be applied to your car, boat, jewellery, furnishings in your home and stocks you own.

  • If you sell stocks for more or less than they are worth, your assets can also drop or rise depending on the value at the time of the sale.

Follow how they change

Anything you purchase or sell will distinctly change the way you manage your assets. If you decide to buy a vacation home, this will add value to your assets. When you purchase a computer or a new car, your assets will change based on the current value of the items’ worth, not so much on what you paid for it.

  • If you find that your list is extensive and that it is complicating your asset management, then seek out the advice and guidance of a reputable asset management firm or financial planner.

By far the most important asset you will need to manage is you, and the knowledge of your own finances and the financial world. You can certainly have more confidence in your decisions and achieving your goals by keeping yourself informed on trends and markets, which will inevitably keep the value of your own assets growing and ready for the future.

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