What counts as an asset or a liability?

Net worth is a simple formula — assets minus liabilities — but the formula is only as honest as what goes into it. It’s tempting to pad the asset side with anything valuable-feeling, or to skip a liability that’s uncomfortable to write down. Both mistakes produce a number that looks reassuring but isn’t actually true.

The resale/redemption test

The cleanest test for whether something belongs on the asset side: could you actually convert it to cash, at something close to its stated value, in a reasonable amount of time? Cash, bank balances, listed investments, retirement accounts, property, gold, and vehicles all pass this test — each has a real market or a redemption process behind it. Items that are mostly sentimental or that lose most of their value the moment they’re bought — furniture, electronics, appliances — generally don’t, and are usually left out even though they cost real money.

Liabilities are more straightforward, but easy to under-count: anything you’re contractually on the hook to repay counts, in full, at its current outstanding balance — not the original amount borrowed. A home loan you took for ₹40,00,000 five years ago but have paid down to ₹28,00,000 is a ₹28,00,000 liability today, not ₹40,00,000.

Common gray areas: cars, jewelry, ESOPs, education

A few categories trip people up more than the obvious ones:

• Cars and other vehiclespass the resale test — they depreciate quickly, but they do have a real resale market, so their current market value (not the purchase price) belongs on the asset side.
• Gold and jewelrycount for the same reason — there’s a liquid, well-understood market to convert them to cash, even if some of the value is craftsmanship rather than metal.
• Unvested ESOPs or RSUsgenerally shouldn’t be counted yet. Until they vest, there’s nothing to redeem or sell — the “value” is contingent on staying employed long enough, which makes it closer to a future possibility than a current asset.
• A degree or professional qualificationisn’t an asset in this sense, even though it may be the single biggest driver of your future income. It has no resale value of its own — its payoff shows up indirectly, through the income and assets it helps you build over time, not as a line item today.
• An education loan, by contrast, is unambiguously a liability at its full outstanding balance — regardless of how the underlying degree is classified.

A worked example: what getting it wrong costs you

Consider someone with ₹2,00,000 cash, ₹5,00,000 in stocks, ₹3,00,000 in EPF, a home worth ₹50,00,000, and a car worth ₹6,00,000 — all clear passes on the resale test, totalling ₹66,00,000 in assets. Against that: a ₹30,00,000 home loan, a ₹4,00,000 education loan, and ₹50,000 of credit card debt — ₹34,50,000 in liabilities. That’s an honest net worth of ₹31,50,000.

The gap matters beyond just accuracy for its own sake: a net worth inflated this way can make someone feel further ahead of a goal — a house down payment, an emergency fund, retirement — than they actually are. Keeping the same, honest categories every time you calculate it is also what makes the number usable as a trend, not just a one-off figure.