Principle #2 Assets and Liabilities
Assets and Liabilities – Principle #2
My grandfather used to always tell me this phrase. “Always own and never loan!” I never understood what he meant, sure everybody would rather own and never take out a loan. HOWEVER, this is the 2000’s and everybody gets a loan for dam near everything, right. A house is a must, for sure a car, and why not everything else on a credit card.
Simply, my grandfather was born and raised in the great depression. Saved everything, flew for the army (before Air Force), was a workaholic, and lived a very simple life. However, he had one main hobby – he liked to make money and was a great investor. He taught me this great lesson – the difference between an asset and liability. In fact, he used it in professional life as well – If you’re an asset to the company they will always find a way to keep you. If you’re a liability, you’re on your way to being fired!
WHY IS THIS IMPORTANT?
Simply, if you have more debt than savings/assets – you are worthless. That sounds sort of harsh, but the truth. This is where starting young and having basic knowledge of finances is so important.
Let’s start at the basics.
An asset is something that appreciates over time (or at least holds value).
I know we went through an abnormal period with COVID that raised the price of everything. Literally you could have sold a roll of toilet paper for a small fortune. However, really look out over time and see what holds value and appreciates. Land, house, education, collections (art, cards, cars, etc.), gold, silver, bonds, a business, etc.
A liability is something that you “owe” or will lose value over time.
A car DEPRECIATES as soon as you drive it off the lot. On average (according to carsdirect) 25%., so if you bought a vehicle for $45,000 – you just lost $11,250! Guess what, same as a boat, ATV, and about anything else with a motor. Most things that you will buy at a retail location, most things you will buy on a credit card (phones, hobbies, and on and on) will depreciate.
Rule #1 Know what assets you have! The easy part is listing things of value (stocks, bank accounts, trust fund, bonds, cash, etc.), the harder part is listing things where value can change or subjective (your income/job, education, a business or tools for your profession, your skills, even your beliefs or religion).
The first big asset that you will invest in is YOU! Think of your trade, skill, or education. You might have to take on some debt to get through school, might have to buy some tool’s, go to a trade school, etc. This CAN be ok because you will get more income back from these items over time. The second big asset that most people invest in is a home. Taking on debt CAN be a good idea (or in most cases a must). Think about this, your initial investment in a home should not lose value (if done right), might go up, AND in a sense- paying yourself rent. Again, you’re taking on debt (a liability) but can be a good return in the future. Good debt (make more in the future) if there is such a thing.
Simply, I’m just getting you to think about things that you buy. Know if it’s a luxury item, a need item (think car, bed, coat, etc.), or an investment item (tools, education, home, etc.). Items that are a “luxury”, try and pay cash for!
Rule #2 If you don’t have the cash to pay for small, tangible items then you sure DON’T have the money to put them on a credit card!
Holy shit, times have changed! Do you know it used to be “in vogue” to be frugal? People used to gawk at others for overspending. Talk about what discounts / coupons / and sales there are. Where were the Jones then? We are a society built on debt, save less and less, and the cost of goods are through the roof. Therefore, it’s so important to realize what an asset and liability are. Don’t think we are built on debt, explain these to me.
What incentives do banks offer to SAVE? Believe it or not – they used to! Used to hand out piggy banks to anybody under 16 – if you filled it and brought it in to deposit – they matched it! They used to have camps when we were kids. Used to have over 2% interest on savings accounts. Used to have bankers that knew you, most likely your family, and gave personal loans out.
Everything is paid with a card (especially since COVID). I paid with a card for a .10 mint the other day, whats the transaction fee on that? People or businesses were literally scared of touching money!
New car loans (I guess standard) are now 72 months in 2022, and 18% of loans now on 84 months.
Buy now – Pay later. Shit, why pay? These don’t even go on your credit report if you don’t pay. I thought that used to be called stealing?
Loans are offered on most items over $500. Computers, electronics, furniture, etc. People / families used to have to save, and these were called luxuries! A home computer used to be a big deal to own (1979). I don’t know how many my family has lying around (desktop, we all have laptop’s, we all have pads, and about 5 old ones in the closet) today. Do we REALLY need this many or is it a convenience that I can look at my tablet while watching TV at the same time?
Every single retailer (it seems) is offering their own credit card. GREAT, I saved 20% on my first purchase to open an account that they are probably charging an annual fee of $50, and they know won’t be paid off ASAP.
According to Self, Inc the average American will pay $155,471 in interest over their lifetime. This can be less or more depending on the region of the country. This number goes up to $202,811 in interest if you back out the 14.6% that can’t work, impaired, or homeless.
Rule #3 Don’t lie to yourself (see below).
You are going to pay the balance off every month. You don’t even have a job, balance your accounts, or know what you spend on certain items. You hope one day you will pay this off!
Guns hold value. Some, but most still depreciate. Even though I have dented it up in the woods, dropped it in the mud, it’s starting to rust, and on and on. Same as that “hunting lease” – it will save on the food bill even though you haven’t shot anything in three years. It’s a hobby!
That Gucci purse is a must. Of course, it is a superior product, they are collector’s items, it makes me feel so good. Maybe, but nobody wants that pink lip stick, eye liner, excess food, and melted gum as the interior of their purse.
I need those Golden Goose shoes! REALLY, you just paid $2000 dollars to stick your stinky feet into. Great marketing team at Groupe Bruxelles Lambert is what I take out of this. Isn’t a shoe supposed to protect and keep your feet clean? So, I just paid $2000 to collect dirt!
I MUST eat, so I put that fast food on credit card. Not only are you a broke ass – you are a lazy broke ass! You would eat healthier and more cost efficient at home (not to mention feel better).
That gold grillz is at least real gold! You aren’t getting your cost back after those nasty things come out of your mouth. Not to mention, half of them are lost (who keeps that statistic but dentaly.org).
We need an updated kitchen. We need a new refrigerator, stove, microwave, etc. I bet the hash brown casserole comes out the same. I know, I know – the water boils faster on a new oven!
It’s not that much more to upgrade to that pickup truck, SUV, sports car, BMW, etc. This is going to come as a shock – but your ass doesn’t know the difference in a Pinto or BMW seat. That’s not true, BMW’s have fitted seats, air conditioned, and heated. Your pampered! They rode horses for at least 2,000 years! Believe me, your legs are grateful for whatever car you have, and the kids spit up, puke, and spill in any vehicle.
Yes, I am at fault for most of these as well. The point is to really ask yourself – The money that I am spending, is it getting me ahead in life, or just some tangible luxury item that will make me feel better? Just “try” to know if it’s an asset or liability before you commit.