Assets and liabilities: how to count your car

A car worth $18,000 belongs in your assets. If you owe $10,000 on the loan, that balance belongs in your liabilities. Together, the car and its loan contribute $8,000 to your net worth.

An asset is something you own that has value; a liability is an amount you owe. The SEC's guide to your finances explains how subtracting your debts from your assets gives you your net worth. Keeping a separate entry for each makes the calculation easier to update.

Your car's value belongs in the record at today's estimated resale price. Look up comparable vehicles with similar mileage and condition, then save the date and source alongside the amount. Use the same source at each review so you can see how its estimate changes over time.

When your car loses value as it ages, that loss is called depreciation. Suppose the car in our example later falls to $16,000 while you pay the loan down to $9,000. Its contribution to your net worth becomes $7,000. Both entries need updating because the loan balance and resale value change separately.

A loan can also exceed the car's value, leaving you with negative equity. The Consumer Financial Protection Bureau explains this situation. Keep the full loan balance in your record even when it is larger than the vehicle's value.

In Sumio, you can enter the car as an asset and the loan as a liability. Update the value using your resale estimate and check the lender's current balance when you review your debts.

For a home, the same method records the property's full estimated value and the outstanding mortgage. If you have already entered both, adding home equity as another asset would count the same value twice. Keep the source for your home estimate with the record so you can revisit it at your next review.

The dollar amounts here are invented. Selling costs and taxes are excluded.