Focus on Appreciating Assets
By: David Ferrara
Tags: Investing, Real Estate, Self Improvement, Personal Finance

When I was thirty, I had nothing. Worst than that, actually, I had less than nothing. I owed a substantial amount of money. I was in the red.

“Here’s a life pro tip. If you are going to injure yourself make sure you have health insurance.”

I was young and thought I was invincible in my twenties. One of my lumbar discs begged to differ. I ended up needing surgery to avoid a foot drop. Did you ever see the Usual Suspects? Well, in order to not walk like Verbal, I needed surgery. Needless to say, this hurt me quite a bit financially.

Now, I live my life in the black. And better than that, even if I am not currently saving all that much, I still seem to keep moving further and further into the black due to the assets I own.

The change came first from starting to take care of myself, so I had no future medical issues. And, of course, now I make sure I always have health insurance. Here’s a life pro tip. If you are going to injure yourself, make sure you have health insurance.

As well as from several other factors. One being I got a much better job and started earning more than I spent.

But when I look back, now a dozen years later, I realize the best decisions I made were focusing on appreciating assets.

Living paycheck to paycheck vs. security

There are plenty of people I know who have been working their entire lives. They are now in their forties and fifties and are still living paycheck to paycheck.

Then there are others who decide to buy their next house in cash.

The difference between these two groups is not all about jobs and careers and salaries. There are people out there who both do the same thing and make the same amount of money with two vastly different financial circumstances.

The difference between the two groups is primarily two things 1) living below their means for long periods of time and 2) taking the money they saved by living below their means and putting it into appreciating assets.

Photo by Carlos Muza on Unsplash

Appreciating assets vs. depreciating assets.

Appreciating Assets include:

Stocks and Bonds

Commodities (precious metals etc.)

Collectibles (art etc.)

Real Estate (house, condo, land, etc.)

Your Brain (sometimes)

Your Relationships (sometimes)

A lot of people say bitcoin and other alt coins are also in this category. And it very well maybe so, but that’s not my area of expertise.

Depreciating Assets include:

Cash**

Vehicles (trucks, cars, motorcycles, etc. — of course, there’s some nuance here. Certain cars could appreciate over time if they are collectibles and you keep them in great condition).

Clothes, accessories, and any other consumable goods

Renting

Your Brain (sometimes)

Your Relationships (sometimes)

** Cash is a depreciating asset because of inflation. Inflation is running pretty low right now, but it is still over 1% and over the course of time generally has been over 2% in the U.S. in the last 100 or so years at least. This means that the cash you are keeping will be worth 1–2% less next year than it is right now.

Real estate is a classic example

One of the most repeated pieces of advice is to buy your own place and stop renting. The reason why is a house or condo appreciates over time due to the land that they sit on appreciating over time.

If you are renting, you own no asset. Worst you generally need access to one of these appreciating assets for a place to live. And if that asset is appreciating, your life is just going to get more and more expensive over time due to asset prices increasing.

But also, this concept can be applied to you

Your life, what you are educating yourself on, what you do with your time, who you develop relationships with is another example of depreciating vs. appreciating assets.

If you spend 40 hours a week in a non-expertise required job, such as a manual labor job, barista, retail worker, etc., then you are spending your time on a depreciating asset.

If you spend 40 hours a week in a knowledge-required career such as law, medicine, finance, etc., then you are spending your time developing an appreciating asset. Your brain is becoming significantly more valuable over time, and you will make a lot more money.

You may become better at your barista job over time, and that may earn you a few bucks more an hour. But a world-class barista vs. a world-class surgeon. The surgeon’s knowledge will be infinitely more valuable to the world, and that knowledge and value are going to compound over time. And the world will pay him significantly more for that value.

Similarly, you will have relationships throughout your life. Some will be positive in the support they provide or the knowledge you learn from them. And some will be negative. Invest in the positive relationships.

Photo by Reinhart Julian on Unsplash

Creating vs. consuming content

You don’t have to go to medical or law school to apply this concept, by the way.

If you are mindlessly consuming content online, that falls into the depreciating side of things.

But if you are spending your time making videos, writing, creating, and putting out quality content, then you are spending your time on appreciating assets. In two different ways: