Continuing the discussion that I began yesterday, let’s talk a little about two kinds of assets: “terrible” and “okay” assets.
TERRIBLE ASSETS: A “terrible” asset is one that loses value over time and which takes money out of our pocket each month. Can you think of any examples? Well, we already mentioned an automobile and how quickly it loses value. But some automobiles have an even larger impact on your wallet, especially if they are big “gas guzzlers”.
And what do you think about smartphones? While a piece of technology may seem like a sound investment, you should not view it as a “good” asset. After all, no one will ever be willing to pay you full price for it later on, and expensive service rates and data plans can end up costing you lots of money each month.
We need cars and we need telephones to go about our day to day activities. However, let’s call a horse a horse. A car, a smartphone, and other similar items are not true “assets” because they really don’t add anything to our wealth- they actually subtract from it.
OKAY ASSETS: An “okay” asset is one that stays more or less neutral in value and doesn’t cost or make you any money per month. It may go up slightly in value over the long haul, but it is not likely to make you a significant profit any time soon. A good example of an “okay” asset is your home. While paying a $1,000 mortgage is absolutely better than paying $1,000 in rent each month (because of the equity you can build up over time) chances are that your house is not likely to spike in value. If anything, it may even go slightly down over time. A house can even become a “terrible” asset if it begins to cost you lots of money in repairs, as may be the case when it receives severe damage that is not covered by an insurance policy.
Other examples of “okay” assets are collectible items. Some people like to invest in vintage toys mint in their packages, in rare paintings, or in antique pieces of furniture. Each of these items is an “okay” asset because it will likely hold its value through the years and can probably be sold in the future for at least what was paid for it, if not slightly more. “Okay” assets are cash-neutral from one month to the next, meaning they don’t have any sort of effect on your wallet (unless you are charging people to see them, in which case they can become an “good” asset that provides cash flow over time).
“Okay” assets might not be the worst way to invest your money, but in terms of generating the cash flow that you will need to pay your bills from month to month, they aren’t really the best option.