Is A Car An Asset Or A Liability? What You Need To Know
If you have been thinking about improving your personal finances for a while, you might know what assets and liabilities are. However, when it comes to categorizing cars or real property, it can be difficult to categorize them as an asset or liability. This is because of the costs associated with these types of assets.
In this guide, we will be taking a look at what assets and liabilities are. We will also be answering the question “Is a car an asset or a liability?” which can be more complex than you might think. Let’s get started!
What Is An Asset?
Assets are items of property you possess that add money to your pockets. When it comes to reaching financial freedom, your goal will be to acquire as many assets as possible. In financial accounting, they are anything that can be utilized to produce value. And by value, we mean money.
For example, is a house an asset? Many think so! However, unless you plan to sell the property, it can be a liability and a pretty big one. It’s going to take money away from you due to the mortgage, that is unless you paid for it in cash.
Even if you didn’t get a loan, we need to consider all the maintenance costs that you have to sustain. That’s definitely not putting money in your pocket. On the other hand, if you plan to resell the property at a higher price, then it can be considered an asset.
You can also consider assets at every investment you make. Why? Because investments are anything that can bring a measurable return on an initial payment. For example, acquiring stocks or cryptocurrency is acquiring assets. They will generate money and profits for you.
Finally, you can divide assets into two types, tangible and intangible. The first is purely physical. You can touch and interact with them. Examples are land, equipment, rental properties, and cash. The second ones are assets that you can’t touch. They aren’t physical. Some examples are brands, patents, copyrights, and so on.
What Is A Liability?
We said assets are anything that are valuable and give you a return on your money. Let’s think of liabilities as anything that takes value away. Some common examples include credit card debt, car loans, student loans, and home loans, also known as mortgages.
We can organize liabilities into the current and long-term. Current liabilities are the amount you owe that is due within 1 year. Long-term liabilities are amounts you owe after 1 year.
As we can notice, the main difference between assets and liabilities is that one gives you profit and the other one does the opposite. Your goal is to keep your liabilities as low as possible.
Is A Car An Asset Or Liability?
Cars are pretty interesting when it comes to categorizing them as an asset or liability. This is because when you buy one, the price goes down tremendously at the moment you acquire it. Used cars are worth extremely less than new cars. So it would be foolish to consider them assets, right? Well, many still discuss this.
One side argues that since you can later resell it, you can consider the car an asset. In the real world, an asset needs to generate money. Something like a car, that rapidly depreciates, is not necessarily considered an asset.
Whether you sell it two hours or two years after buying it, it will still not be profitable. This is because you won’t sell it for a higher price. Of course, there are some exceptions.
There are historical or collectible cars that can rise in value. However, we are not talking about those unique cases. We are talking about what most people buy, which is a day-to-day car. A vehicle that is only driven for personal purposes.
This means that the answer to the question “Is a car an asset or a liability?” is: it depends. While this might be anti-climatic, determining whether a car is an asset or a liability is up to you. We will see how this can happen right now. You are going to learn many ways on how to make your car generate profits for you. Just stay tuned!
How Can You Turn A Car Into An Asset?
If you buy a car and want to improve your financial life, you want your car to become an asset. After all, having more money is always a good thing. There is no reason why a car shouldn’t be a good investment. Let’s take a look at how you can turn your car into an asset.
Become a Ride-Sharing Driver
Becoming a rider for a ride-sharing platform is probably a method you were expecting us to mention. There is a good reason for that! Becoming a driver is a good side hustle that will allow you to generate additional income. By doing this, your new car will become a source of income and with it, an asset.
Uber is the most widely known and recognized ride-sharing platform in the entire world. It is certainly a method that can allow you to earn some extra cash on the side by accepting rides.
The best time to drive might be either on the weekends or during commuting hours. However, you can also drive whenever you’d like. Uber is becoming more and more popular as people always need a ride, and they want it fast. Many consider it better than a taxi cab.
Keep in mind that you must meet several requirements to apply. These are the following:
- You need to be at least 21 years old.
- You need to have a vehicle with 4 doors.
- Before you can drive, you will need to pass a personal background check and a vehicle inspection.
Lyft is known as Uber’s greatest competitor and another great alternative. Just like the previous one on the list, you can drive for Lyft as long as you are 21 years old. You can also work as an independent contractor with them.
Most drivers are going to utilize both Uber and Lyft to stay as busy as possible. According to many drivers, they all kind of have mixed feelings about those platforms. So, you may find one appeal to you more than the other.
When you are waiting to accept a ride you can check both of the apps and choose the better option. You do also need 4 doors in your vehicle but you have the opportunity to earn a $500 cash bonus.
This bonus can be appealing. You can get it by driving a certain number of times when you first start in Lyft.
This is a great alternative to driving people around. If you are not a fan of having random strangers in your car, doing delivery may be for you. It will certainly leave a better smell in your car.
Lots of restaurants are partnering with foodservice delivery platforms. Examples of them are Uber Eats or Doordash. This creates a wide variety of available food delivery that wasn’t here previously. It is a great idea for consumers and you can take advantage of it.
It also saves the restaurant from having to hire a delivery staff. This means more opportunities for somebody like you to earn some extra cash.
Being a delivery driver is a good option for people that are over 18 years old and want to work on their own terms. Finally, If you didn’t have a car, you could also deliver food by bicycle or scooter.
Collect Old Articles
The next thing you can do is collect pieces of junk that could be exchanged for money. If you own a pickup truck or a trailer, you could make some serious bags. So, if you have a vehicle of this type that can haul goods, obviously you are going to be valuable.
You can also help people move things in your spare time. Just post an ad on Craigslist and wait for the results. However, when you pick up things like scrap metal you can find a local recycling center. Be sure they will pay you for that haul.
If you don’t mind using your car as a moving billboard, you can make great money. There are several companies to choose from. The most popular is called Carvertise. You can learn all about it on their official site or find another platform that looks for such a service.
Discover how much you can earn by just wrapping your car. It is not a bad deal. If you were thinking about it, you can also make car advertising your profession. You can even advertise your own businesses. It is very useful and it works.
Offering your vehicle as a rental business may be one of the best options. You can do this by using services like Turo. Let’s just say that this company works similarly to Airbnb and VRBO. The only difference is that Turo is meant for vehicles.
With Turo, you can earn between $30 up to $150 per day listing your vehicle as a rental car.
The amount which you are going to earn will depend on the model of the vehicle. It also will work better in certain geographical areas.
This is the revolutionary auto business, and it can be pretty interesting… And simple!
Cars That Hold Their Value Best
To further increase the value of your car as an asset, you want to make sure its value decreases slowly. This will ensure your car doesn’t become too much of a liability!
Here are some of the cars that depreciate the least. They are ranked on how much they are going to be worth as a percentage of their original price. The measures are made on a basis of 5 years.
Subaru Impreza WRX
The list begins with this incredible car which keeps 60% of its original value after 5 years.
It offers a potent combo of turbocharging power and all-wheel-drive security for nearly two decades on our shores.
The WRX has stayed remarkably close to its original recipe the entire time. It is definitely one of the best sports cars you can buy for under $10,000. And no, we are not talking about the new model. We are referring to the 2004 model!
The frontier is comfortably the oldest car on this list. It retained 65% of its value over 5 years.
The current model has had a few updates throughout its life since Nissan debuted in 2005.
It is a mid-size truck in the old-school molds with two different cab and bed lengths available.
Large displacement 4 and 6-cylinder engines aren’t particularly high tech, but they are reliable. This consistency probably contributes to the Nissan Frontier being on the list.
Another mid-size Japanese truck you say? Oh yes. Amongst the entire lineup of Honda vehicles, it’s the Ridgeline that comes out on top when selling time comes. It retains 61.9% of its original value over 5 years.
Sharing its unibody platform with the Pilot crossover and Odyssey minivan, the Ridgeline features are smoother than other trucks out there. A powerful and reasonably economical 3.5 engine also helps.
The 4runner prioritizes off-road prowess and towing capability over small runs. There is some decent room for 5 in the rugged but plasticky interior. Its 4 liters v6 engine also gives this model a respectable amount of power.
That legendary Toyota reputation for reliability no doubt helps the 4runner retain a strong 63.5% of its original list price.
Jeep Wrangler Unlimited
Back in 2007, Jeep introduced the first factory-built four-door Wrangler Unlimited. It almost immediately became the dominant model. The package is simple to understand. All of the appeal of the original Wrangler, but with 20 more inches between its wheels.
This is enough for another pair of doors and backseat space that works for actual humans.
The Unlimited’s increased desirability is reflected in its resale value. It’s the best vehicle in the entire market, shedding only 30% of its list price after 5 years.
That means that 60 months after you buy one, it’s still worth 70% of its original value.
Conclusion on the Financial Value of a Vehicle
So we have just reached the end of this analysis. We know the discussion can turn some heat on, but a car by itself is considered a liability. Many consider them a perk but unfortunately, they are more likely to take away your freedom and security.
New cars are a financial triple threat. We borrow money at interest to pay for it and maintain it, and it also drastically depreciates its value. Just think that most new cars will depreciate 63% in the first five years. 10% of that is lost at the moment that you drive it off the lot.
In our opinion, if you want to buy a car just get a used one. It never loses much value and rarely needs anything but oil changes and brakes, tires, and other wear items. That is unless you want to transform your car into an asset by having it generate money for you. Let’s face it, not everyone wants to do the extra work!
The money you save by buying a cheaper or used car, or none at all, can be invested in actual assets. If you want to invest in some really valuable assets, make sure to check out our investing section. There, you will find many interesting assets including cryptocurrency and ETFs.
Most articles include a step-by-step explanation of what they are and how to buy them. It doesn’t matter which one of them you decide to buy, all our information will be helpful for you.
Finally, you can check out our side hustle section too, as many of these side hustles will benefit from you having a car. These will also help you to keep liabilities at their lowest.
Hope you enjoyed the article and see you at the next one!
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