Ask an Accountant is provided by Your Money by Design’s stellar accountant, the inimitable Mindy Abramowitz. We’re happy to have her here each Wednesday! Have a question? Want more info on the post? Leave a comment!
Maybe you are applying for a credit card, a loan or a mortgage, or maybe you are just trying to get a handle on your personal finances. Where does your car belong in the financial picture?
Although it costs you money, and occasionally grief, your car itself is an asset. Anything you own that can be sold for cash counts as an asset. Even a beater can be sold for parts; and, whether it seems like it or not, it contributes to your net worth.
It’s all the other stuff car ownership entails that leads to confusion. Fuel, repairs, insurance and lease payments are all expenses – that is, costs of owning a car. A car loan is a liability, or debt. Loan interest is another expense. And let’s not forget depreciation – a car loses value from the moment you drive it off the lot. The longer you own a car, the more you will have to budget for future repairs (also a liability!) and the lower its potential selling price.
So a car may be an asset, but it’s one that incurs expenses and gives rise to liabilities over time.