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Personal Finance

Do You Spend Your Money On Appreciating Or Depreciating Items?

14th July 2007

This is one of those questions I never asked myself until I got into a financial mess. Actually, even while in the mess I didn't ask myself that question I was too busy stressing about how I was going to pay for all the bad debt I had accrued. My good friend Ted a financial analyst and economist was the one who asked me the question. There I was complaining about how I have so much bad debt and how I didn't know what I was going to do for money. By the way this was the second time in my adult life that I was on the path to bankruptcy luckily I have never had to file thanks to my friend Ted and my supportive family.

Personal Finance First thing is first, when you are in bad debt STOP spending because if you continue to spend all you do is dig the hole deeper. Now if you are like I was everything I spent money on made sense to me. That was until Ted opened my eyes when he said, "Kevin do you spend your money on appreciating or depreciating items?" Of course my response to him was "Huh?" Here is a crash course on what I learnt that day.

Lesson 1:

In money terms Appreciate means rise in value and Depreciate means to reduce in value. Take a look around you, in your home, office or simply on the street. We are surrounded by items that mostly depreciate in value over time. These include your hi-fi, home theatre system, television, furniture, clothes, cars etc. These are items that make our lives more comfortable but that's all they do. So what are the appreciating items? Houses, condos, apartment building, office complexes, hotels and property in general. Other examples are stocks, bonds, businesses, gold etc. Can you see the difference? It hit me like a lightening bolt that depreciating items are more affordable to the average person than appreciating items and appreciating items are harder to acquire. Remember the 80 - 20 philosophy?80% of the population are consumers and 20% are producers.

Lesson 2:

The wealth sits with the 20% of the population that are the producers because their portfolios consist mostly of appreciating assets. The 80% that are the consumers spend their time and money accruing depreciating items. This financial revelation was the turning point for my personal finance life. Two of America's richest men Bill Gates and Warren Buffet did not spend thier money on buying designer clothes when they were starting out. Today they are billionaires and I'm sure they still do not blow a lot on designer clothing. Simple question: If billionaires are not buying the latest Gucci sunglasses so why are you? Folks its pretty simple. Fact is most Americans cannot buy appreciating items or assest right away but you can set yourself financial goals and start saving NOW.

Lesson 3:

Appreciating items are mostly assets. Assets add money into your pocket. Depreciating items are mostly liabilities and liabilities take money out of your pocket.

Lesson 4:

I'm not saying do not buy clothes or consumer electronics for your home. What I am trying to tell you is that a no-name t-shirt serves the same purpose as a t-shirt with a Lacoste logo on it and it costs 10 times less. Spend less and save more is the lesson here.

After reading this post I'm hoping that you will easily be able to see where you are spending your money and if need be make some changes.

"People with low financial literacy standards are often unable to take their ideas and create assets out of them. " - Robert Kiyosaki

Comments (15):

Alan Says: Kevin how come I don't know what you know?! | 07.14.2007 |

Cedric Says: What a post | 07.14.2007 |

Jane Says: When I read these posts I realize its all about common sense but then again common sense is not common | 07.14.2007 |

Mark Says: I do not agree that appreciating items are difficult to get I think its more a case of you cannot really show them off unless you are someone like Bill Gates | 07.14.2007 |

Denson Says: Its all about mindsets and since majority mindset is not financially intelligent you find that the majority spend more on liabilities and less on assets | 07.14.2007 |

Patty Says: Now that I read this article I see that I'm a culprit when it comes to spending on liabilities instead of assets | 07.14.2007 |

Ahmed Says: In reality everyone spends on liabilities and assets and I think what Kev is stressing is that to be wealthy one needs to delay instant gratification and save to acquire assets | 07.14.2007 |

Ben Says: An important point was raised by Denson that its about mindsets. If your priorities are straight then so is your mindset and financial success comes easier to such folks | 07.14.2007 |

Mike Says: Lesson 3 needs to be taught more to drum the message home | 07.14.2007 |

Isaac Says: Kev I think you have a good point. The 80 20 philosophy you always talk about is what makes our world go round and I think the 20% are making it harder for anyone else to share or join the circles of the immense wealth they keep so closely guarded | 07.14.2007 |

Pete Says: I had an argument with my wife a month ago because she insists on buying labels and I'm just a simple guy anything goes. I'll be sure she reads this article! | 07.14.2007 |

Joe Says: This is a true common sense view thanks Kevin | 07.14.2007 |

Max Says: Kev have you considered writing a guide for dummies? Good post | 07.14.2007 |

Kevin Says: Max actually I have and am in the process of doing so. I will keep you guys informed thanks by the way | 07.14.2007 |

Tanja Says: This is a good article and the lessons are interesting | 07.14.2007 |

 

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