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What Are Assets?
Assets are valuable possessions that you own. This includes things like cash, retirement and investment accounts, vehicles and your house.
What Are Liabilities?
A liability is something that you’re responsible for. In the case of net worth, we’re talking about your financial debts. Liabilities are a drain on your net worth, so get them out of your life!
How Is Net Worth Calculated?
Start with what you own: cash, retirement accounts, investment accounts, cars, real estate and anything else that you could sell for cash. Then subtract what you owe: credit card debt, student loans, mortgages, auto loans and anything else you owe money on. Then boom—you’ve got your net worth.
How Can Something Be an Asset and a Liability?
You might notice that items like your house or car are both assets and liabilities. That’s because larger purchases take a while to pay off. The part you own is an asset, but the part you owe is still a liability because debt always creates risk.
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