Buy and invest in assets, not in liabilities - Know where to put the line.
The new millennial trend is, investing in posh cars, big houses, and lifestyle products. I'm not calling it buying because in most cases they don't buy but do this mortgage or loans. It would seem like a stupid move a decade ago but now it's the new normal.
Or is it?
Old school like us still wouldn't do so, I guess. I read it somewhere -
Rich people buy assets, middle-class people buy liabilities that they think are assets, and poor people only have expenses.
There's nothing more clear than this. It says a lot about why the middle class does so. Mostly because they want to change their class by showing off what can they can afford. But the truth is, this doesn't bring any good.
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Why do you think rich people remain rich? Isn't it because of their long-term goals and financial habits?
On the other hand, people who spend money on liability can never ensure that their wealth will even last for the next generation.
The line between asset and liability is obvious. But many see liabilities as future assets or long-term investments. That's when the problem begins. One of my friends took a good amount of loan from a bank with an interest rate of 17%. Oh, that's huge. He bought cars, rented them, and got kind of scammed. One of his cars was seized by police because the person he rented that was carrying drugs. Long story short, he had to pay a huge fee (about the same as the car price) to free the car.
Here, buying cars seems like a good investment and gives us a false impression of an 'asset'. It would be an asset if the intention was to use them personally. But for business, it was a huge risk.
Yes, there will always be risks in business even if we only buy and invest in assets. They can devaluate. But considering the example, I can say, there must be other solid idea rater investing in liabilities.
My idea is pretty simple -
Invest in something that is legal, has good return, have long-term potential to grow, you can call that a solid asset. If it's not fully owned by you, even if in your name; that's not a good investment. Asset sure comes with liability. But the pressure liability creates can rip us financially.
The temptation of having a lifestyle is too big nowadays. It always sounds good to buy a big house instead of an apartment even if you have to pay the mortgage for the next 15-20 years. Even after saying this, many will agree that they will give up their shelter for that lifestyle.
This mentality will block us from growing. Maybe you are making good money, no need to take advice from anyone. But if anyone fails to learn the basics of financial management, there's no guarantee the money will last forever.
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