Spending money wisely is hard. Spending our hard earned money on items that don’t lose value due to depreciation is even harder. For the car owners among us, we know all too well that many assets depreciate over time. That is to say as time progresses, the asset becomes less and less valuable.
Before we move on let’s define depreciation. Depreciation means to fall in value or worth. Some items depreciate more rapidly than others while yet others don’t depreciate at all. Instead of depreciation, these items experience appreciation. That is to say these items appreciate, or increase value, rather than lose their value over time. One of the most notable examples of an asset that depreciates quickly is that of the automobile.
A friend of mine got in on the employee pricing promotion Ford had this past year. Having recently graduated from college, he was in need of a dependable vehicle for his 45 minute commute to work. He left the dealership with a brand new Ford Escape, equipped with a four wheel drive and all the other bells and whistles one could hope for. Having paid just $23k for his new brand new SUV, he walked away extremely satisfied. But once he left the lot depreciation started to kick. The value of his Escape has decreased each day since he bought the vehicle. The market value of his one year old Escape has dropped $2-3k since he first took ownership of the vehicle.
What can you do to avoid such rapid depreciation? Well, in all honesty there is not much you can do. In the case of cars, maintaining low miles and frequently servicing the vehicle will help sustain the value of the vehicle. But even the most pampered vehicle will depreciate in value over the years.
Of course new vehicles are notorious for falling prey to depreciation, but not all assets depreciate. Fortunately, for retirement’s sake, there are many assets that typically appreciate over time. We can generally think of appreciable assets as things we might invest in. For instance, on average the market of value of land tends to increase in value with time. Thus many people buy up real estate property with the intention of profiting from the sale of the property years down the road. Most retirement plans also include some degree of investment in stocks and securities because given time these assets tend to appreciate.
Understanding how depreciation works can help one spend their money wisely throughout their life. There are a couple of depreciation related questions one can ask before spending their hard earned money. Next time you think about a purchase, big or small, run through these questions in your head:
1. How long will this last? – Items that will be used over a longer period typically prove to be of more value. If it is something your going to get rid of in two months then what is the point of buying it now?
2. What will be worth in a month? Year? 10 years? – Items that fall prey to rapid depreciation won’t be worth much of anything at all in the future. Make sure the sticker price today is an appropriate value in light of the items future market value.
3. Is it really worth it to me? – Just because something will depreciate to no value in year doesn’t mean it can provide you with satisfaction. Decisions on how money is spent should be made with consideration to the true market value of the item as well as your expected satisfaction derived from the purchase.
Depreciation is a part of life. Inevitably, we all must buy items that lose their value very quickly – like clothes, groceries, and furniture. Doing your best to spend your money on good value items can help you stretch your money further, live a quality life, and avoid the traps of depreciation.
Spending the Millionaire Cash Flow
Are you sure you want to be rich? I mean really rich? Like the kind of rich where you have so much cash flow coming in you don’t even know what do with all this money – except for swim in it. Being a millionaire would definitely be great. Think about all the great things you could do with your millions in cash flow.
The One Great Way to Make Money
Is there one great way to make money? The simple answer is no. In fact there are a variety of great ways to make money. Just ask Robert Allen or Mark Victor Hansen, two of America’s foremost experts on creating wealth. A few of the great ways to make money include investment (be it in real estate, mutual funds, stocks etc.), entrepreneurial ventures, or via rapid corporate promotions. Each path to wealth offers its own unique advantages, but if you are looking for the one great way to make money that anybody can follow then you have come to the right place.
Management Fundamentals
For beginning business students learning the business terminology will go a long way in ensuring you perform well in your classes. Not all families have a strong business pedigree and many of us must learn the business basics the old fashioned way – on our own. If you don’t know what management is or what the financial reporting process entails, then this is a great place to start. To jump start your busing understanding here is a brief overview of some fundamental business terms.
