Tuesday, September 18, 2012
How To Take Care Of Your Resources - Interrelations
If one were to think of the true meaning of the word asset, what would it be? In the age that we are now living in, asset translates to almost everything: house, cars, the chair you bought ten years ago, that yacht you purchased, and naturally all your savings.
An asset is something tangible that we find value in. Knowing your assets may lead you far away from a pre pack insolvency which would mean terrible news to you. To comprehend how we can keep our assets and make it grow, let us first differentiate the different kinds.
Kinds of Assets
The first type of asset is the appreciating asset. These assets have values that both appreciate or are maintained over time. Unlike other assets like clothing and stocks of food, assets like luxury cars have values that appreciate with time.
The second type of asset is plain personal property. Personal property includes everything that you store in your house, including clothes, ordinary cars and furniture.
Here's the thing about assets: most assets have depreciating values. For example, a brand new car in a show room has a different value from a brand new car which was just driven ten kilometers by its new owner. Sometimes, the value of this kind of asset is immediately halved because of plain usage.
Assets are also part of one's over all "financial identity". Assets are also assessed once you make application for a loan, or a mortgage for a new house.
How do lenders evaluate applicants? One simple way to determine whether a person can pay his / her loans is by looking at a person's debt-to-income ratio. If the debt supersedes the gross income, the person is considered not fit for another loan.
Based on Rudy Cavazos, the director of corporate and media relations for the Money Management International:
"Maintaining a great debt-to-income ratio will keep vital financial doors open. Owning a home and a car is just the beginning. A home requires improvements, and cars must be replaced. "
Computing Debt-to-income Ratio
Can't wait for a financial advisor to compute your current debt-to-income ratio? No need to call anyone to your aid. You can compute it from the comfort of your house or office.
First, compute your gross monthly earnings. This includes everything from monthly salaries to bonuses to income from second jobs. Proceed to compute the total amount of money you have to expend for debt obligations.
Now, divide the whole debt obligations by the first figure, which is your gross income. The resulting decimal notation will be the percentage of your debt-to-income ratio.
According to statistics, more than 8% of American homes have negative net worth. This simply means that these families have more financial debt to pay than money coming in. This spells trouble, because even fixed interest rates can bury a family in debt for a long time.
Avoid The Trap
Based on Wendy Liebmann, president of WSL in the United States:
"The role of shopping in American life has changed dramatically since 1990. No longer is shopping solely about practicalities alone. Today, shopping is about who we are, how we live. Shopping is life. "
Wealth creation is about knowledgeable choices- to create wealth, one must save, obtain appreciating assets and avoid the shopping-crazy culture of the US.
For more information check out: Finance7