Tag: Personal finance

003, Get off Your Assets!

Paw Paw

img_0303Assets

Assets are simply what you own. Don’t just blow by that last sentence. Go back and look again. The last word is key. To this date, I still don’t own my home. From the first time you are asked to fill in your address for a credit card, bank account, etc., you’ll be asked if you rent or own your house. There’s no box to check or explanation that your house is financed. It’s just rent or own. Looking back, the first time after I financed my first house I thought I was making great progress because finally the “own” box could be checked on credit applications. I can remember thinking it’s weird because the house was deeply financed. But I was told that’s the normal and correct thing to do. Somehow that little interaction was the first step down the crap line of BS that the financial world sells, the ones that pick your pocket anyway. I knew it wasn’t technically correct. But I played along and somehow felt better, more comfortable, and maybe even a little more successful. Their strategy to underplay debt had worked. The language that’s the norm in our society today is wrong. I don’t “own” my house. I have equity in the bank’s house. That’s the true situation from a financial perspective. Assets are what you own.

Assets are something that someone else will pay you money or trade you something else of value to get. Things like owning stocks, bonds, profitable businesses, and investments. A house, a car, a motorcycle, a travel trailer, motor home, and land are all assets. Those are things that have value. Other people will pay you in exchange for those type of things.

This word asset is used frequently, but not always correctly from a financial perspective. People say your looks are an asset, but that’s not true. Maybe they said your brains, or work ethic, or some other characteristic was an asset. Those are not assets. They are characteristics. These days folks seem to use incorrect words to describe things. Maybe they are just using it for emphasis, but it’s still wrong. Words matter. If you repeat things long enough you get more comfortable with what you are saying. You may even start believing it. Don’t fall into that trap.

Assets are generally categorized into one of two types. Appreciating assets and depreciating assets. It’s a little more complicated that that, but if these two categories are understood and used properly, large gains can be made over time. Even the investors with the fancy degrees don’t get every move right. Just keep playing and moving forward.

Appreciating and depreciating assets are the two big rocks in this post. All assets are not created equal. Some assets go up in value in certain situations. Others go down in the same situation. Some things change rapidly and some slowly. Some stay stagnant over time. While there are numerous variables that can effect assets, usually they are just affecting the rate that the asset appreciates or depreciates. Generally they go in the direction described above over a long time. That’s what we’re playing for here. The long game is what we want to win.

An example of an appreciating asset is PepsiCo Stock that I own. When I was young, one of the things I explored was something called a DRIP. DRIP stands for Dividends Re-Investment Plan. Under the plan small numbers of stocks can be bought. Once you own the stocks, the dividends are used to buy stocks instead of receiving a check for the dividend. If you haven’t figured it out yet, dividends is money a stock sends its investors. That’s one of the benefits of OWNING stock. So, back in like 2000 or so, I purchased $500 of PepsiCo Stock. It was only like 5.2 shares. Not much at all. I’ve never added a penny to the stock. So, for like the last 18 years the dividends were reinvested back into PepsiCo stock buying more shares. When I checked the value of the account today my $500 investment is now worth $2,734.09. That’s more then 5 times my initial investment. You can argue details about PepsiCo isn’t a great stock, DRIPs are too expensive with fees, or whatever. But can’t argue that it increased in value more than 5 times my original investment of $500. Assets like that are what you should be after. The Big Rock here is you have to do something. Anything is better than nothing.

Appreciating assets is where you want most of your effort to go to achieve forward progress. Simply put, it increases in value over time. They are worth more tomorrow than they are today. Some examples are low cost index based mutual fund, stocks, a savings bond, savings account in a bank. Over time, your assets will allow you to achieve the financial freedom to do the things you value most in your life. The more appreciating assets you own, the harder they will work for you. Compounding interest also works in your favor to multiply the positive affects over time. When your assets are providing more income than your expenses, you are financially free, financially independent, retired, or whatever you would like to call it. Generating income from clocking in at a job, going to work at your business, or looking for new jobs to create income to cover your expenses can be over!

Depreciating assets are the opposite. They are worth less and less over time and may even eventually have no value. Just about anything with a motor would fall into this category. A boat, car, motorcycle, or even a weed eater. RARELY can you purchase one of these items and then sell them for more after a short time of use. These are major drains on your valuable resources, mainly money. Rather than creating more value at a later date they drain your resources as they decrease in value. Then, as in the car, when it no longer works it is usually replaced. Then the cycle of bleeding value repeats.

The key here is to limit your losses on depreciating assets and maximize the acquiring appreciating assets. When looking at future purchases, ask yourself which type of asset are you buying. Will it lose value and have to be replaced? Will it be worth more in the future? It’s obvious that the depreciating assets are holding you back from forward progress. Appreciating assets tend to grow or provide dividends (money). If they are producing dividends, reinvesting those dividends to buy more appreciating assets will push you forward towards a financial goal. If you are investment is in a business, say a coffee shop, profit you make thatis invested back into the business is similar in that you would do that in order make the business more valuable.

My little granddaughter (in the picture) may or may not become a great fisherman one day. Of course, she’ll never know if she can unless she fishes. She has to cast her line in the water to find out. Are you fishing for the type of fish that will be worth more than the minnow you bought for bait? It’s never too late, or too early, to get off your assets and purposely cast your line in the water.

001, What do you Value?

Paw Paw

IMG_0277

Everything has Value!
What exactly is value. Simply put, it’s how much are you willing to give or get for something. It’s the price you pay for something or the price you would take for someone to buy it from you. Value is transferred by these transactions. But what unit of measure are you using?
As the old saying goes, money can’t buy everything! It does have value. Money isn’t the most valuable thing for sure. It can’t buy life, time, happiness, friendship, love your parents, or repair a broken relationship. It can’t buy many material things like the ring that my mother gave my father that he passed down to me. Often I figure that money can’t buy the things that are most important to me. It seems like it can at times, but it really can’t. All of the things mentioned above are valuable. But there’s no dollar or monetary value anyone can assign to them. How much would you pay for another special day with someone who passed like: my mother, grandparents, cousins, or maybe a best friend?

Money is simply one measure of value built on Trust
Our US dollar is so strong in the world market because it has the full backing of our great nation. Back in the day, it was backed by bars of gold and silver, but not anymore. Now it’s just based on the fact that if you have one dollar, the US government will always ensure it’s legal tender for a transaction. But what if our government was not trustworthy? I’m only saying it’s trustworthy in backing the dollar, there are many things that they may not be trustworthy on, but backing the economy is one they stand out on.
In my years in the military I’ve seen worthless money from governments that have failed for one reason or another. When in Italy, I found a 100,000 Austrian Lira note under the drawer in an old end table I found from Austria, Slovenia, or somewhere over there. It was obviously very old. So, I got excited because in my young mind 100,000 of anything old had to be worth something pretty big now. Right? Nope. The dude on the front of the currency was one of the many dictators who rolled through. His “iron fist” ruling cost his country’s collapse. The value of the 100,000 Lira? It got me a scowl from a foreigner for even having something with the dudes face on it! I couldn’t get anything of value for it. Another example of useless currency I experienced when I was in Turkey. While eating lunch, I noticed a 1,000,000 (yep 1 million) Turkish Lira bill in the tip jar. Turkey had been plagued by roaring inflation for years (over 38% for several years). Inflation was so bad that the currency was ridiculous. I bought the 1,000,000 Turkish Lira for the grand total of $1 US Dollar! Then in 2003, the Turkish government reset their notes. They just literally slashed 6 zeros off of the currency and created the “New Turkish Lira”. So, I was a Turkish millionaire from 2000 until 2003. At that point, my 1,000,000 Lira was valued at 1 New Turkish Lira or approximately 75 Us Cents. I valued the million lira note more than 75 cents, so I never sold it. I valued having that little piece of history, and the cool factor, more. But the lack of trust in the Turkish ability to control inflation cost them the entry into the European Union. They just couldn’t be trusted to not draw down the larger Union based on their recent history. So, trust in money is very important. Without trust, you money is not as valuable to others who trade with you.

Time is Valuable, But Much Harder to Evaluate
We tend to be here and now centered frequently when asked what is our time worth. Today I make $10 per hour. So my time is worth $10 per hour. That’s a typical first thought process that has some validity. But it surely doesn’t encompass the entire picture. For example, if you are going to college, a movie, or concert are you paying for your time. Say you paid $100 for some concert tickets for a 2 hour concert. Using the above logic, your time is worth -$50 per hour since you gave away $50 for every hour of your life you spent doing that task? Is the entertainment value worth the 10 hours of work it took you to make the $100 (for simplicity, I’m ignoring deductions for tax, social security, insurance, etc. ). What about your entertainment value? How does that come into play?
So, what does all that mean? It means your time, just like your money, does have value. Placing a value on time is complicated, yet simple too. You’ll only have so many seconds, minutes, hours, days, weeks, months, years, or decades alive to do stuff. Time is finite and waits for no one. Whichever of the units of measure for time you choose, once it’s past or wasted you can never go back. Sure, there are things you may be able to do with the remainder of your finite time to get more efficient, get more effective, get more stuff, more money, or more family time. But you can’t go back to a missed birthday party, a missed birth, a missed funeral, or even a missed conversation. Sure, you can use some of your remaining finite time to apologize, make excuses, or whatever. But you can’t go back.
You also don’t control how much time you have. Only God knows that answer. We all have heard of the stories. Uncle so-and-so smoked every day, drank every day, and never slept. He really didn’t take care of him self. But that dude lived for over 80 years. You’ve also heard of the ones who are in picture perfect shape. Great athlete. Made all the right “sacrifices” in the name of a long healthy life. Then dies in his early thirties. Or your buddy from high school who died in a car accident. Then there’s the sudden infant syndrome stories. You just never know the time or the place of your end.

Increasing the Things You Value
So, the take away is to use your valuable resources wisely. Spend the your time on the things that are most valuable to you. Each of us are different and have different things we value. I’m at a time in my life of reflection. I look back on past mistakes and am trying to make sure I don’t repeat them. I’m looking forward to how to avoid mistakes in the future. I’m also trying to explain some things that may help y’all avoid some of the mistakes, or missed opportunities,
The best way to maximize your resources to increase things that you value is long term consistent progress. There are no shortcuts. In order to get things you value, you’ll have to trade something else of value. You trade time for hourly wages or a salary. You trade your valuable time doing other things. Maybe playing video games, hunting, fishing, watching movies, reading, Facebook, formal education, informal education like library or internet research.
Is what you doing consistently moving you forward. Do things that move your closer to the goal adding value (no, not just money). Day after day, week after week, month after month, and year after year you move forward and avoid moving backwards. Do the right things for the right reasons, keep moving, keep learning new ways to maximize ways to get more of the things. Then after time, when you look back, you’ll be amazed by how far you’ve come.
Here’s a couple of examples. I value gardening. I have grapes, blackberries, raspberries, basil, onions, garlic, asparagus, peppers, a peach tree, a plum tree, and a fig tree. That’s only the edible stuff. I also have Mexican Petunias (from Taylor), Hen and Pecs (PePaw), DayLillies (Gene), 4 O’Clocks (PePaw), Iris (PePaw), Purple Beans (Margie), and many others. That’s quite a lot of plants for the little bit of yard we have. But it was all part of a plan. I wanted things that I valued. I value the edible stuff for obvious reasons. I also value the flowers and other plants because it reminds me of the people I love that were generous enough to give me a little piece of them (their plants). If done in one effort, it would be overwhelming. It would be a lot of effort. But I didn’t do it all in one effort. I built up my valuable (to me) garden often only one plant at a time. I brought home a hunk of Mexican Petunia’s from a trip to Lockhart at Taylor & Austin’s first house. I brought home a clump of dirt with 4 O’clocks from PePaw and MeMaw’s from a trip to visit them a couple of years ago. Each time I was gifted or bought something, I’d think of a place in the yard with the most chance of success, or where it could be enjoyed, or some other reason that made sense to me at the time. Another thing that makes my garden valuable is that none of the things have to be replanted. In many cases, they are even propagating where I have more than was originally given to me or more than I bought. I can now literally share the “fruits” of my labor with people I value. I can give a cutting or plant to someone I value for them to enjoy. So, I have a valuable garden that I built up over time. It was built in baby steps, over a long period of time, and consistently. A small effort, over a long time, of things that increase in value (or quantity) allow me to be more generous each year because now my garden provides more than I can possibly use.

Please leave you comments here for everyone to see. I’ll take inputs for future blog posts. If you don’t leave comments, you’ll just get whatever I feel like posting.
Paw Paw