Are your assets really liabilities?

Hopefully, you created your balance sheet early in your quest for financial independence. While it is important to have a good idea of your net worth, your net worth doesn’t really represent what you have available to spend. Understanding which of your assets are also liabilities is key. Plenty of companies with lots of assets have gone out of business because they didn’t have the cash to sustain operations. This is where your cash flow statement becomes important. 

Owning a car – asset or liability?

Let’s look at the costs and benefits of owning a car. Consider this scenario. You live in a somewhat urban area with a decent public transportation system, and you keep a car because you like the freedom to go where you want when you want. The value of your vehicle (the book value or trade-in value) will be on your balance sheet because it is an asset – meaning an item of value. You could get cash if you sold it. Now, let’s determine if this asset is also really a liability.  

asset or liabilityTo own your car and have the option to drive it, you need to register the vehicle and obtain auto insurance. Depending on where you live, you may also have to pay property taxes. In addition, you will need to have a place to park your car. In some cases, you will need to rent a parking space; in other cases, you may need to look for a property with space for your car, whether you rent or own your home. In most cities, a home with parking will cost more than one without parking. Also, you must maintain your car – purchasing items such as oil, tires, and light bulbs. Then, there is the cost of occasional maintenance, such as timing belts and water pumps. And, of course, if you want to go anywhere, you will need gas, electricity, or both. 

If you live near your place of employment and have nearby walkable access to conveniences like grocery stores, you may not drive your car very often. If your city has decent public transportation, you may determine that it is frequently easier to use public transportation than to drive your car. And with the availability of ride-hailing apps, you may use your car even less regularly. If you calculate the cost to keep your car and divide it by the number of trips you take or the miles you drive in an average month, how much is each trip or each mile costing you? When you look at your financial priorities, does the financial cost of keeping your car align with your priorities? Is having your car an asset? Or is it really a liability? 

Owning a home – asset or liability?

Similar considerations apply to owning a home. Depending on where you live and how long you plan to live there, this calculation changes. The cost of living, including property taxes, utilities, maintenance, mortgage rates, and other factors, also affects the calculation. Thus, it does make better financial sense for some people to rent rather than buy their homes. 

Determining whether your assets are really liabilities

In both examples, the circumstances are key. And circumstances change over time. While it may be difficult to financially justify owning a car in a given location with a particular job, changes to job responsibilities, the dependability of public transportation, or even the number of people splitting the cost of a car would make a difference in these calculations. 

Evaluating your finances is not a one-and-done exercise. Your financial plan needs to evolve as your life changes, whether it is a plan for financial independence at age 30, 40, 65, or any other time. Your financial strategies, as well as the treatment of your assets and liabilities, will need to be adjusted as your circumstances and goals evolve. You may find that yesterday’s assets become liabilities – and you may also find that yesterday’s liabilities become assets. 


This article is intended to be educational and thought-provoking rather than financial advice. When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals. We examine these factors and many others during our financial planning process to determine appropriate financial strategies for YOU.

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