Thursday, January 9, 2014

Financial Well-Being: Assets

From an early age people start collecting and accumulating baubles and trinkets. Some have more sentimental value than financial, but nonetheless hold meaning beyond what the eye can see. We attribute ownership to these things, even if there's not an actual contract or document that can verify such. If these things went missing or were destroyed in a disaster, it may create a financial hardship and a deep sense of loss.

An asset is defined as "a useful or valuable thing, person or quality; an advantage or resource". The financial value of assets can be quite subjective and hence the need for appraisals. The actual value tends to be what other people are willing to pay at a particular point in time. Just take a look at eBay recent sales of a specific item and you'll find quite a range of prices paid for similar items.

As you begin to purchase and accumulate assets, there are some very important considerations to make. First, is it necessary? Do you really need this particular thing at this point in time. Can you borrow or rent the item, instead? Does it fit with the rest of your financial plan? What purpose does it serve?
Second, if it is necessary, is it the right time to purchase the item? There may be other priorities that need to be taken care of, beforehand. Could market conditions change and make it worth putting off the purchase for a time?
Finally, is it the right price? With so many tools at our fingertips, we can compare and research before making a final purchase. Take time to learn all you can, before making a purchase. Will it hold it's value over time or depreciate rather quickly?

Another important aspect to consider is the care and keeping of assets. For everything you choose to own, there is a level of management needed to document and protect it. At the most basic level is keeping records of purchase agreements, receipts and warranties, including serial numbers. These records should be kept in a safe or digital file for as long as you own the item. If you suffer a disaster or theft, insurance adjusters will need to have some sort of proof for the things you claim to have lost. Depending on the value and use of the item, you may need to have a specific insurance policy for it. The more valuable the item, the more complex things can become. Keep an accurate inventory of your assets with current estimates of their value.

Storage may be worth contemplating. If you travel a lot or rent your residence, it might be prudent to use a safe deposit box at the local bank. Fire proof safes can be handy, but not quite as secure. Again, it depends on how valuable or irreplaceable the item may be. Consider the expense of storage as you are thinking about making the purchase. Will the cost to protect and maintain the item outweigh the benefit of owning it?

Finally, consider final disposition of the item. If you sell or bequeath the item, there may be tax considerations, depending what kind of asset you have and how long you've owned it. Although you could write a list of what you have and how you wish for things to be settled upon your death, it's safer to have an attorney involved. There are short term and long term gains, tax shelters and charitable donations that could affect the final settlement. If you wish for the asset to be handed down to the next generation, there are many financial implications to consider and you would be well advised to seek out an accountant, along with an attorney to develop a plan that will meet your specific goals in the long run.

The more you have, the more there is to manage and protect. Carefully consider the life you wish to have and how assets might fit into that life. Don't let things dictate the way you live. Learn to live with what you need and manage your assets well. Know the purpose they serve and communicate your wishes clearly. Share the stories that go with them, so they can live on.

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