When determining your net worth, creating a list of your assets and liabilities is one of the first steps to calculate where you stand. Property like real estate, bank accounts, and investments are immediately recognizable as assets with monetary value. However, your automobile may be considered both an asset and a liability.
Key Takeaways
- A car is a depreciating asset that loses value over time but can retain some worth.
- Vehicles immediately begin losing value once the owner takes possession.
- The Kelley Blue Book provides trade-in and private party values for your vehicle.
Understanding an Asset
An asset is something that holds monetary value now or in the future. Common personal assets include certificates of deposit (CDs), real estate, jewelry, and investments like life insurance policies and stocks.
When a company’s assets are on a balance sheet, they include current and fixed assets. Current assets are commonly converted to cash within the fiscal year, such as accounts receivable, cash and cash equivalents, and sellable goods or materials. Conversely, fixed assets are tangible items like machinery and buildings or intangibles like patents and licenses.
How Is a Car an Asset?
Your car is considered a consumer product, and consumer products can depreciate. A car is a depreciating asset that loses value over time but retains some worth. Because you can convert a vehicle to cash, it can be defined as an asset. Unlike real estate, savings accounts, and other assets that have the potential to increase in value, automobiles are vulnerable to a range of depreciating factors that can cause values to plummet, such as:
- Odometer miles
- Wear and tear
- Accidents and dents
The average yearly cost of ownership in 2023 to maintain and use a car for 15,000 miles annually is over $10,000. This includes maintenance, insurance costs, and fuel.
Some cars that retain their value or appreciate over time include 1950s American classics and British or German classics like the Aston Martin or Bentley.
Value vs. Depreciation
Depreciation affects your car's overall worth, and knowing the value of your vehicle when planning to sell it is essential. A new vehicle loses 20% of its original value in the first year. A $60,000 car is only worth $48,000 a year later.
If you use your car for business, you may be able to claim your depreciation loss, up to $19,200 if you qualify, when you file your taxes.
The website for the Kelley Blue Book (KBB) uses your vehicle’s year, make, model, amount of mileage, and vehicle identification number (VIN), to provide the trade-in and private party values. All vehicles naturally depreciate over time and with regular use, but some models retain value. According to KBB, Toyota is the value brand that tends to hold its resale value and identified the Toyota Tundra as the model that best retained its value in 2023.
Should Your Net Worth Calculation Include Your Car?
When calculating your net worth, subtract your liabilities from your assets. Since your car is considered a depreciating asset, it should be included in the calculation using its current market value.
Is a Financed Car Still an Asset?
Yes and no. The vehicle is an asset with a cash value if you need to sell it. However, the car loan is a liability, and the loan should be deducted from the car's value.
Can a Car Ever Be Considered an Investment?
Rare and exotic cars may increase in value as the number of road-worthy models decreases.
The Bottom Line
Nearly every vehicle on the road will depreciate over time. Miles driven add to its wear and tear, accidents and dings cause values to decrease. Car owners should continually research their vehicle's value and keep a diligent maintenance schedule to optimize its worth in cash.
FAQs
Because you can convert a vehicle to cash, it can be defined as an asset. Unlike real estate, savings accounts, and other assets that have the potential to increase in value, automobiles are vulnerable to a range of depreciating factors that can cause values to plummet, such as: Odometer miles. Wear and tear.
Is a car a good asset to buy? ›
Just don't expect to get a financial return on that investment when it comes time to sell your vehicle. Most vehicles rapidly lose value the moment they leave the dealership lot. Because the value of a car typically decreases almost immediately after you purchase it, a car is not considered a good investment.
Is a car a current asset? ›
Yes, a car is regarded as a fixed asset or capital asset as it is useful for the business in the long term. But, one point to note is that the car is subject to depreciation. Also read: Intangible Assets.
What is the best answer to define an asset? ›
The International Financial Reporting Standards (IFRS) defines an asset as “a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.”
How do you turn your car into an asset? ›
If your car is collecting dust in the garage, renting it out can be a great way to make money back on an asset that isn't being used. Services include Turo, Getaround and HyreCar. However, if you have a current auto loan, your lender may not allow you to rent your car out.
Is your car part of your net worth? ›
Your net worth is what you own minus what you owe. It's the total value of all your assets—including your house, cars, investments and cash—minus your liabilities (things like credit card debt, student loans, and what you still owe on your mortgage).
How much should I spend on a car if I make $100,000? ›
How Much Should I Spend on a Car if I Make $100,000?
| Annual Salary | Affordable Monthly Payment (based on 15% of average take-home income) | Vehicle Price (assuming 20% down and 60-month loan term) |
|---|
| $85,000 | $806.55 | $53,500 |
| $90,000 | $848.10 | $56,141 |
| $95,000 | $889.50 | $58,885 |
| $100,000 | $931.05 | $61,000 |
7 more rowsMar 21, 2024
According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%. You can use a car loan calculator to calculate a monthly payment within your budget.
How much should I spend on a car if I make $90,000? ›
The value of all vehicles you own should not exceed 50% of your gross annual income (exuding bonuses) If you finance, the payment should be less than 10% of your monthly net income, and total cost of ownership (payment + gas + insurance + maintenance) should be less than 15% of your net monthly income.
What type of asset is my car? ›
Answer and Explanation:
A car is a depreciating asset. This is because the car's value has limited effective life and thus is expected to reduce with time. This means that if the car is to be sold in the future, it will be sold at a lower cost than its buying price.
What's an asset? An asset is anything you own that adds financial value, as opposed to a liability, which is money you owe. Examples of personal assets include: Your home.
What is considered an asset? ›
Assets are things you own that have value. Assets can include things like property, cash, investments, jewelry, art and collectibles. Liabilities are things that are owed, like debts. Liabilities can include things like student loans, auto loans, mortgages and credit card debt.
What's your best asset? ›
Your attitude is your greatest asset and can make up for gaps in your expertise, skills, and knowledge while growing in those areas. Make sure that you're intentional in keeping your attitude strong and contagious in a good way.
What are a woman's assets? ›
Assets include both tangible and intangible economic, social, or productive resources, which can constrain or enable women and girls' empowerment. Our model locates financial and productive assets, knowledge and skills, social capital, and time, within the sphere of assets.
What makes a person an asset? ›
This means that you're reliable and consistent, have good communication skills and can complete tasks independently. Being an asset also means that you can work well with others, especially if they have different strengths or weaknesses than yours.
Is a car an income producing asset? ›
For example, while a car may be worth a lot of money, it is not classified as an income-generating asset. Even if this asset appreciates in value because it is not creating cash flow, it is not considered an income-generating asset.
Is a car an asset for a mortgage? ›
Physical assets include anything tangible that you own that's valuable – anything that can be touched. Physical assets that can be sold for funds to be used to qualify for a mortgage include – but are not limited to – properties, homes, cars, boats, RVs, jewelry and artwork.
Is your house an asset? ›
Your home falls in the asset category even if you have not paid it entirely off. The value assigned to your home can be the amount you paid to purchase it, the taxable value or the current market value based on how other houses are selling in your neighborhood.
