Your net worth is the gap between what you own and what you owe. We calculated that number in the previous post. Now let’s look at the first side of that equation: assets.
What counts as an asset
An asset is something you own that has monetary value. It’s either cash, something you can sell for cash, or something that generates income.
Common assets:
- Cash and bank accounts: current accounts, savings accounts, cash on hand
- Investments: stocks (shares of companies), bonds (loans you make to governments or companies), index funds (collections that track a broad market), ETFs (exchange-traded funds, similar to index funds but bought and sold like stocks)
- Retirement accounts: pension funds, employer-sponsored plans, private retirement savings. These are investments, but they deserve their own category because you usually can’t access the money until a certain age and withdrawing early often means penalties or taxes. The access age, penalties and tax treatment depend on your country and the plan. They count toward your net worth, but their liquidity is very different from a regular brokerage account
- Property: real estate, land
- Vehicles: cars, motorcycles (though they depreciate fast)
- Valuables: jewelry, art, collectibles (if you can actually sell them)
What doesn’t count as an asset
This is where people go wrong. These are not assets:
- Your salary: income is a flow, not a stock. It becomes an asset only when you save it
- Your degree: education increases your earning potential, but you can’t sell your diploma
- Your job: you don’t own your employer. Your job produces income, but the job itself is not on your balance sheet
- Your potential: future earnings are not present assets. They might fund assets later, but they aren’t assets now
The distinction matters because padding your asset list with things that aren’t really assets gives you a false picture of your financial position. A doctor earning €200,000 a year with €50,000 in savings is not in the same position as someone with €200,000 in investments and no income.
Asset quality: not all assets are equal
Two people with €100,000 in assets are not necessarily in the same position. What matters is the quality of those assets.
Liquidity: how quickly can you convert the asset to cash without losing value? A savings account is fully liquid. A house is not. You can’t pay for an emergency with your front door.
Direction: does the asset tend to grow in value (appreciate) or shrink (depreciate) over time? We’ll dig into this in the next post, but the short version: index funds tend to appreciate. Cars depreciate. Fast.
Stability: how predictable is the asset’s value? Cash is stable. Stocks fluctuate. Cryptocurrency can swing wildly.
The asset spectrum
Think of assets on a spectrum from most to least useful for building net worth:
| Asset | Liquid? | Direction | Stable? |
|---|---|---|---|
| Cash savings | Yes | Flat (loses to inflation) | Yes |
| Index funds | Mostly | Up (historically) | Moderate |
| Bonds | Mostly | Up (slowly) | Mostly |
| Real estate | No | Up over long periods in many markets, not all | Mostly |
| Cars | Yes (but at a loss) | Down | No |
| Collectibles | Maybe | Unpredictable | No |
Cash is safe but loses ground to inflation. Stocks grow but bounce around. Real estate has often appreciated over long periods but is illiquid, and some markets have stayed flat or fallen for a decade or more. Cars lose value the minute you drive them off the lot.
What this means for you
When you look at your assets, ask yourself:
- Are these real assets? Make sure you’re not counting things that can’t be sold or converted
- What is each one doing? Cash in a low-yield account is stable and accessible but grows slowly; investments can grow more but move around. Knowing which job each asset does is the point
- How is the mix balanced? All cash tends to erode slowly with inflation. All stocks means volatility that can be hard to live with. Many people hold some of each; the right blend depends on your timeline, income stability and how much fluctuation you can tolerate
Understanding what you own and how well it’s actually performing is half the net worth equation. The other half is what you owe, which we’ll cover next.