A personal asset is something of value which belongs to some. A classic example of a personal asset is a home, but personal assets can take a wide number of forms. The value of personal assets is often taken into account when people apply for loans or other forms of financial assistance, and when the net worth of an individual is calculated. Many people are surprised by the total value of their personal assets when they are added up.
Financial accounts like checking, savings, and retirement accounts are all personal assets, as are instruments like life insurance policies which have a cash value, even if that value is not accessible. Real estate is another example of a personal asset, as is a business, along with things like cars, electronics, and collections of art, antiques, and other valuables.
There are two ways to determine the value of personal assets. The first is to look at the market value, the amount which these items would fetch if they were sold on the open market. The second is to examine the appraised value, a value which is often significantly higher because it is based on the potential future sales price of an item. The difference between these values can be very important, especially when people are doing things like taking out insurance on a personal asset, as people are usually required to carry insurance on the appraised value, not the market value, which means that they will pay more in insurance.
Learning to manage personal assets is an important part of managing one's overall financial situation. Personal assets can be a liability or a genuine asset, depending on how they are handled and taken care of, and developing an asset allocation strategy is very important. For example, putting the bulk of one's personal assets into a single location or account is generally not advised, because this exposes people to higher risk. Likewise, failing to properly care for an art collection can cause it to decline in value.
Assets can also generate income. Real estate, for example, is a personal asset which can be rented or leased, while bank accounts can generate interest. People must be careful to keep track of income from personal assets because this income is considered taxable and there may be government penalties if the income is not properly tracked and declared on tax documents. It is also important for people who want to build up their overall wealth to learn to manage assets so that they generate the most income.
