What Happens When an Asset Depreciates
Depreciation is the gradual decline in an asset's value over time due to wear, age, or market changes. As the recorded value falls, the total value of what you own decreases, which directly lowers your net worth.
How Depreciation Affects Net Worth
Net worth equals assets minus liabilities. When an asset depreciates, its value drops while liabilities remain the same, so the difference shrinks. For example, a car loses value each year, reducing the owner's overall net worth even if no debt is added.
Assets That Commonly Depreciate
Vehicles, electronics, and machinery typically lose value quickly. Real estate and certain investments may appreciate instead, but even those can decline in some markets. Understanding which assets depreciate helps you plan and protect your net worth over time. For more detail on how depreciation is calculated, visit Investopedia.
