Have you ever put on a pair of jeans or a jacket you haven't worn in a long time, and found money in the pocket? Is that not one of the best surprises that you can imagine? Sometimes losing track of what you own, leaves a fun surprise for future you, but in the grand scheme of things, you'll feel more in control of your finances and make better decisions when you understand and keep track of everything you own. Lose track of five bucks in the pocket of your old jeans, great. Lose track of an old 401k from three jobs ago, not so great. In this lesson, I'll discuss the most common assets and the pros and cons of each of them. Even if you already have a strong understanding of what you own, you'll walk away with an appreciation for how different assets can impact your net worth over time, as well as recommendations for how much you can comfortably spend to acquire each type of asset without putting your overall financial health at risk. Some of the common types of assets include cash, investments, automobiles, and real estate. Cash can include both physical cash and any balances held in checking or savings accounts, as well as uninvested portions of your investment accounts. Cash is liquid, meaning it's easily exchanged for goods and services, making cash highly desirable in many circumstances. However, cash doesn't really grow in value. In fact, cash tends to lose value over time due to inflation, which is the economic term for when prices of goods rise and the purchasing power of your money falls. How much cash in savings should you have? Enough for a fully stocked emergency fund, which may be 3-6 months of your expenses, a baseline in your checking account so you never go negative and savings for goals that are coming up in the next couple of years. Too much cash means missing out on potential investment returns and too little cash means unnecessary stress when a medical bill or a car repair or roof leak pops up. Investments can consist of marketable securities like stocks, bonds, mutual funds, and ETFs. While different types of investments grow at different rates over time, securities are purchased with the expectation that they will increase in value. So when you want to grow your net worth, purchasing investments can be a very effective way to do that over time. Investments also vary in how liquid they are. In other words, how easily they can be exchanged for cash. But their potential for growth is what makes investments so appealing. Automobiles are another common asset type. While owning a vehicle may be very practical from a lifestyle perspective, they tend to depreciate over time. This means that they often have the most value when you purchase them and then become less valuable with time. While they may not be a great investment in terms of growing your net worth, a car can still be a solid purchase. Debating between a new car or a used car, a used car will lose value more slowly than a new car. Real estate is another very common asset type. You may own real estate in an investment portfolio, but most commonly real estate is owned in the form of your primary residence, your home. Real estate has the potential to appreciate over time like marketable securities, while also providing value as your home or maybe an income generating property. Remember that investments are not guaranteed to appreciate and real estate is no exception. If you own real estate, it's likely to be one of your largest assets, but also associated with one of your largest liabilities, your mortgage. As your real estate grows in value over time and you slowly pay off your mortgage, your net worth will grow. Your mix of assets will change over time as each asset either grows like your 401k or home value, or loses value like your car, but it will also change as you save and invest more over time. Given that the stock market and real estate market goes up and down over time, you might see that the value of your assets fluctuate too. That's okay, focus less on the daily, weekly, or monthly fluctuations and more on longer term trends. One last thing, keep in mind that the value of your assets is only one piece of your financial picture, so although it's important, try not to be overly focused on it.
