This is a true story from my own experience that illustrates how buying assets for wealth creation works.
Just over 3 years ago I found myself with $75,000 to spend or invest. My wife and I needed a new car as the old one was 8 years old and not as reliable as it used to be, so we spent $40,000 on buying the latest model.
Our $75,000 was now reduced to $35,000.
We now made the wisest financial decision we have ever made (apart from buying our own home) and used the remaining $35,000 as a deposit on an investment property to help provide for our eventual retirement. The investment property cost a total of $178,000 including mortgage, conveyancing, and stamp duty costs.
Three years have gone by and this is what has happened.
The car has dropped in value by at least $10,000 and possibly more, but is providing good reliable transport.
The owner of the neighbouring property to our investment has put his identical property on the market for $319,000 which compares favorably with other properties in the area. As a conservative guess I would expect it to achieve a sale price of $300,000 or thereabouts.
This means that we have made around $122,000 on our original investment in the house and lost $10,000 on the car. It's actually worse than that. By buying the car instead of the neighbouring house we have forgone a possible $122,000 profit, so the car has has actually cost us $162,000! The old car is still running and in daily use.
The end result is that we have a paper profit of $122,000 on the house and a technical loss of $132,000 on the new car ($162k - $30k residual value).
The moral of this story is to put your money into things that increase in value (assets), and NOT into things that decrease in value (liabilities). You may not have a large sum of money to invest in real estate but there are other asset classes like art, antiques, coins or stamps where there are plenty of smaller investing opportunities.
If you can remember this story of buying a house versus buying a vehicle next time you make a major purchase, you can evaluate how the purchase is going to affect your future wealth. Do you really need a new vehicle or a wide-screen TV? Would a low-mileage second-hand car, and keeping the existing TV be sufficient? Making the right decision now will have a huge bearing on your retirement.
Learning to distinguish between wants and needs, and investing in assets is the key to wealth creation and a comfortable retirement.
Is Love Ever In Vain? Do you throw good love after bad? If you treat love as a gamble rather than an investment, it's time to start investing in the kind of love that is never in va...
Marketing Strategy - Shift the Focus Most of the small businesses I've worked with don't like marketing or selling. In fact, many even say they "hate it." Shift your focus from trying to "market an...
Tips for Attending Gemstone Shows Avoid blowing your budget by defining your market and planning your gemstone purchases in advance...
Diamond Flashes Events on the diamond market. From computer intelligent mining programs to new technologies in diamond grading.
Food with Niacin and The Benefits Niacin, also called nicotinic acid, is a member of the B-group of water-soluble vitamins and occurs in food with niacin.
Tree Pruning Tips Why hire a professional to prune your trees when you can easily do it yourself? This article provides everything you'll need to know to make the trees in your ...
How to Build a Bigger and Better Chest Creating a larger more powerful chest is difficult but if you follow this easy workout you'll see results in no time.
It Really Is Simple RSS I have 'Googlebot' coming to my site every day since a month ago I put up my first news feed, since then I have put up yet another. I never used to see 'Google...
4 Steps To Having the Life You REALLY Want! Over time, the TIP's Letters that receive the most response have dealt with creating and living the life you really want. Many of us are incredibly frustrated ...
Best Halloween Costumes and Halloween Costumes Creative Halloween costumes are the focus of many mothers who are stretching their imaginations to find clever disguises for their children's trick or treat tim...
Nourishing Your Network It takes less effort to keep an existing customer than to gain a new customer. This is Business 101. Corporations focus on acquisition, but they must also focu...
What is Organic Food? In the U.S, all farms or products claiming to be "certified organic" must be guaranteed by a USDA-approved independent agency to be meeting the following guidel...
Print this page