In a world where instant gratification often trumps long-term financial wisdom, it’s time to challenge the norm. And beleive me, you will be an outlier in certain situations and within certain circles. You just have to be ok with not upgrading your life to keep up with those damn Jones’. So, let’s talk about spending money on depreciating assets versus investing in assets that appreciate or pay dividends.
Firstly, what’s a depreciating asset?
Simply put, it’s something that loses value over time. Think cars, gadgets, and designer clothes. You’ve probably experienced it firsthand – that brand-new phone losing its allure as the latest model hits the market or that shiny car losing its value the moment you drive it off the lot. These purchases might bring fleeting joy, but they’re not doing your financial future any favors. Especially if financing these shiny objects needs to happen instead of buying outright.
So let’s talk appreciating assets – aka wealth builders!
On the flip side of depreciation? Assets that appreciate or pay dividends have the power to grow your wealth over time. Appreciating assets, like stocks, potential businesses and real estate, increase in value over the years, potentially providing significant returns on your initial investment. Dividend-paying assets, such as dividend stocks or bonds and cash-flowing real estate investments, not only grow in value but also pay out regular income, allowing you to reap the rewards even while you hold onto them.
So why should you care?
Because your financial decisions today shape your tomorrow. Splurging on depreciating assets might satisfy immediate desires, but it’s akin to throwing money down the drain. Instead, consider the long game. I know, I know. It’s really hard to do this when you have windfalls, such as raises or tax refunds or hell, pay day. By redirecting your spending towards assets that appreciate or pay dividends, you’re building a foundation for future financial security.
The bigger picture here relates to your overall way of thinking.
This is not just about accumulating wealth – it’s about mindset. It’s about understanding the difference between wants and needs, between short-term gratification and long-term fulfillment. It’s about recognizing that true wealth isn’t measured by the number of possessions you own but by the stability and freedom that financial security brings.
Of course, this isn’t to say you should never indulge in life’s luxuries. As Ramit Sethi says: Live your Rich Life! And Paula Pant teaches: You can afford Anything, but Not Everything! Life is about finding balance. It’s okay to treat yourself occasionally, to spend lavishly on the things that matter, but make sure you aren’t doing that with everything. And ensure it doesn’t jeopardize your financial goals. Remember, every dollar spent on a depreciating asset is a missed opportunity to invest in your future.
In the end, it’s about making informed choices. It’s about prioritizing financial literacy and taking control of your financial destiny. So the next time you’re tempted to splurge on that shiny new toy, pause and consider: could this money be better spent on assets that appreciate or pay dividends? Your future self will thank you.