Assets to Appreciate

There is no lack of options in today's world on which to spend or in which to invest your money. I'd like to propose that you ask yourself one simple question before letting go of that money: "Will the asset I purchase appreciate or depreciate over time?" This simple question can affect what you end up buying when you really stop to think about it.

Let's take two assets for a comparison. Both a car and a home would show up on your personal balance sheet as an asset when purchased. Of course, you may also have a liability on that balance sheet in the amount of the financing or mortgage, but I'd like to focus on the debit side of the transaction (excuse me for the accounting speak). These are two assets that have real value at the time of purchase. Now let's look 20 years down the road from the time of purchase. The car is now worth a fraction of what you paid and is, thus, a depreciating asset. If you were a public company, you would have to record a depreciation expense every year to show that the asset was losing its value.

The house on the other hand may fluctuate in price over those 20 years, but most likely will be worth more that what you paid for it, thus appreciating in value. Again, if you were a public company, you would not be recording a depreciation expense each year because the value is not being lost. Rather, when the house is sold, the amount on the balance sheet becomes the amount you receive for the sale.

These are pretty simple examples, but make the point that an appreciating asset is obviously a better purchase than a depreciating asset. We all understand and know this intuitively, but do we really stop to think about it before every purchase. If we focus more on spending our money on appreciating assets and minimizing the purchase of depreciating assets, we set ourselves up for much greater wealth in the future.