20-video series #9: Accumulate appreciating assets, and aim to eliminate depreciation from your life

Welcome to my new 20-video series, on the 20 Next Level Wealth steps to designing and then living your dream life. 

The dramatic landscape changes over the past few years have created a unique opportunity for you to design and live your dream lifestyle. 

In this 20-video series, which I filmed while travelling around Europe, I've aimed to articulate everything important that I've learned about personal finance, business, wealth, and designing an ideal lifestyle...into just 20 short blog posts! 

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Remove depreciation from your personal financial statements

We know that to build wealth, it’s important to compound and multiply your results, by investing in assets delivering wealth-producing rates of return.

There’s another side to that equation, though, and that’s to remove depreciation from your life to the extent possible.

A lot of young people starting out dream of having one million dollars.

But really what they want is to spend a million dollars, usually on depreciation assets and experiences…which is precisely why they won’t be able to have it!

Renting to own

This is a simple yet overlooked point.

Most people know what assets and liabilities are (if you don’t, it’s probably a good idea to find out!).

But people do get confused about what’s a genuine asset…one which will help them to achieve their goals.

Depreciating assets are what you don’t want to own too much of in life: cars, boats, golf clubs, caravans, electronic gadgets…and so on.

It may be better to be a renter of these items in some case, so that you can own quality investments and appreciating assets.

A personal example

I’ll give you a personal example.

I wanted to spend some time at the beach last time I was over in England in summer, and I looked into buying a beach chalet (basically a glorified caravan, on a managed beachside park).

I was tempted to buy one, but when I looked into it, the problem was they they cost about $100,000, and then after 5 years or so the park owners will require the property to be refurbished, and that’s on top of the park fees of about $10,000 per annum.

If you don’t agree to refurbish the property up to the required standard, the park management offer you a derisory amount to buy the property back from you, perhaps $10,000 or so.

So, the loss over five years is likely to be $30,000 in fees, plus $90,000 in deprecation.

That’s a total of about $140,000 or a painful $28,000 per annum.

Not good, even if you do decide to rent the place out to make back some of the money in rental income.

It’s a small example of how through a lack of understanding people may not use money smartly.

It’s tempting to buy one of these chalets for a few long weeks or weekends at the beach, but it actually makes far more sense to rent them, rather than be on owner.

In the end I settled for buying a small beach hut for $30,000, which is far more likely hold its value in today’s dollars (in fact due to COVID and more people holidaying domestically, it instead appreciated to around $50,000).

This is just a small personal example of the types of financial decisions people face all the time.

The lesson here is to avoid buying assets which will be worth significantly less in the future.

Buying very expensive new cars is one very common trap, because when you come to sell…ouch.

Resolve to remove depreciating from your financial life as much as possible.

The depreciating asset trap

Absolutely last thing you want to do is rack up large liabilities for depreciating assets as this is a double whammy which will make your journey to financial freedom considerably tougher.

If you must buy a car, then buying one that’s 3 or 4 years old is likely to work out far better financially, because the bulk of the most painful depreciation has already happened by then.  

On the other hand, owning appreciating assets can speed your journey along, particularly if you invest in assets which generate a strong cashflow.

Appreciating assets which generate cashflow might include commercial and residential property, farmland, and stocks and shares.

There are other investments which may appreciate but generally don’t generate a cashflow, including commodities such as gold, silver, and other precious metals, or collectibles, such as art or fine wines.

I discussed this further in this short video here.

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Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:

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