What is an Asset? Simply speaking it is an item or a product or a thing bought for a particular price, which increases in value with the passing of time.
A good example of this type of an asset is “Property”. Generally it is seen that the value of property increases over period of years. Thus investment in property can be called as an appreciating asset. Similarly an investment in purchasing a car for example is a classic example of a depreciating asset. Why? Because when you want to sell this car you do not get the price at which you bought it, forget about getting more over and above the price at which you bought it.
Knowing this basic fundamentals, why do people still end up investing in depreciating asset? One probable answer could be that they do not know the difference between them or two they do not know the difference in affordability and sensible spending.
As humans we often get tempted and this leads to impulsive buying. We do not think if the purchase is going to add value or not? If you sit and analyze about all the purchases you made in say last 5 years, you will find that most of them which once you bought are not even being used. And if you agree with this, then don’t you think it is time for you NOW to take charge of your buying behavior and spending decisions.
So how can that be done? Well it may sound simple but in reality it is not that easy. First of all you need to know the difference between both an Appreciating asset and a Depreciating Asset. As seen above any purchase which adds value or increases in value over and above its purchase price over a period of time is an Appreciating Asset. Few classic and general example of an appreciating assets are Investments made in Property or real estate; financial products like Mutual Funds, Shares, Public Provident Fund, Unit Linked Plans etc. Precious metals like silver, gold and diamonds; collective items like Arts and antiques etc. Similarly some of the best examples of depreciating assets are Vehicles like Car and Bike, Electronic items, Gadgets like phones, laptops etc. Amounts spent on unwanted furniture and interiors done at home.
Having explained the above I am not trying to dictate what you should buy or what you should not, this decision is something which you all need to make. But what I am trying to bring to your attention is the fact that you must carefully analyze your needs and requirements before you make your purchases. In the world and times that we are living there are few things which we need to do in order to stay with times, and we need to spend on these depreciating assets too, so how can a balance be achieved?
I have this approach in most of the purchasing decisions I take, it helps me have the best of both worlds. And you know what? It works for me, may be it will work for you too. No harm in trying, right? Recently I had to change my cell phone. Smartphones are available at every price point nowadays. So this is what I asked myself before making my purchase…. What is it that I am looking for in a phone? I need the following basic things in my phone….making and receiving phone calls, using text message application, whatsapp messenger for sharing videos and pictures, and yes being a person on the move always I have to have continuous access to my business emails. So with these parameters set, I narrowed down my search for a decent Smart phone which not only served all my above mentioned purposes, but also was friendly on my pocket. Affordability is not the question here, being sensible with your purchases and money is
My idea of writing these stories is not to impose my views on you all, but to educate you all on the basic concept of using your money in your best interest. If you adopt or try any or all of these ideas which I share and if it helps you manage your finances better than before, then my job is done as we can be much happier and stress free.
A good example of this type of an asset is “Property”. Generally it is seen that the value of property increases over period of years. Thus investment in property can be called as an appreciating asset. Similarly an investment in purchasing a car for example is a classic example of a depreciating asset. Why? Because when you want to sell this car you do not get the price at which you bought it, forget about getting more over and above the price at which you bought it.
Knowing this basic fundamentals, why do people still end up investing in depreciating asset? One probable answer could be that they do not know the difference between them or two they do not know the difference in affordability and sensible spending.
As humans we often get tempted and this leads to impulsive buying. We do not think if the purchase is going to add value or not? If you sit and analyze about all the purchases you made in say last 5 years, you will find that most of them which once you bought are not even being used. And if you agree with this, then don’t you think it is time for you NOW to take charge of your buying behavior and spending decisions.
So how can that be done? Well it may sound simple but in reality it is not that easy. First of all you need to know the difference between both an Appreciating asset and a Depreciating Asset. As seen above any purchase which adds value or increases in value over and above its purchase price over a period of time is an Appreciating Asset. Few classic and general example of an appreciating assets are Investments made in Property or real estate; financial products like Mutual Funds, Shares, Public Provident Fund, Unit Linked Plans etc. Precious metals like silver, gold and diamonds; collective items like Arts and antiques etc. Similarly some of the best examples of depreciating assets are Vehicles like Car and Bike, Electronic items, Gadgets like phones, laptops etc. Amounts spent on unwanted furniture and interiors done at home.
Having explained the above I am not trying to dictate what you should buy or what you should not, this decision is something which you all need to make. But what I am trying to bring to your attention is the fact that you must carefully analyze your needs and requirements before you make your purchases. In the world and times that we are living there are few things which we need to do in order to stay with times, and we need to spend on these depreciating assets too, so how can a balance be achieved?
I have this approach in most of the purchasing decisions I take, it helps me have the best of both worlds. And you know what? It works for me, may be it will work for you too. No harm in trying, right? Recently I had to change my cell phone. Smartphones are available at every price point nowadays. So this is what I asked myself before making my purchase…. What is it that I am looking for in a phone? I need the following basic things in my phone….making and receiving phone calls, using text message application, whatsapp messenger for sharing videos and pictures, and yes being a person on the move always I have to have continuous access to my business emails. So with these parameters set, I narrowed down my search for a decent Smart phone which not only served all my above mentioned purposes, but also was friendly on my pocket. Affordability is not the question here, being sensible with your purchases and money is
My idea of writing these stories is not to impose my views on you all, but to educate you all on the basic concept of using your money in your best interest. If you adopt or try any or all of these ideas which I share and if it helps you manage your finances better than before, then my job is done as we can be much happier and stress free.
Nice blog..... Will help in organising my future expenses..
ReplyDeleteThank you so much for your comment:)
ReplyDeleteI am so glad it was of help to you.