"An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit." according to wikipedia
Lifestyle assets include our house(s), cars, boats and those other items that don't produce disposable income.
One can not measure ones wealth according to ones lifestyle assets; for the simple reason that these items characterise our lifestyles as opposed to funding it or creating it. Another way of putting is, said person is "Asset rich but Cash poor.
So why do we care, well, when heading towards retirement or a life of financial freedom, your lifestyle assets will cost you as opposed to bring in an income. Additionally most of these lifestyle assets are funded with debt; therefore making it challenging to start saving into an investment that can brining in passive income in the form of interest from a cash or bond investment; income from a property investment portfolio or dividends from a share portfolio; or a combination of these.
With the intention or retiring or reaching financial freedom, one must consider what the costs of your lifestyle assets are on a monthly basis; ignore the cost of not being able to save due to the repayment of the debt; do consider, even when the bond/ debt is paid, what does that asset cost you. Will you need to re-borrow on that asset, at some stage to fund the monthly costs.
There are two ways to make personal profits. 1) Earn more money or 2) Lower expenses. In order to achieve financial freedom at any stage of your life. It is imperative that your monthly expenses are kept to a reasonable amount and your income has the ability to earn you passive income; if your life purpose (ie doing what you love on a daily basis brings in additional cash - all the better.)
So now what, we have the debt, we have the lifestyle assets which we now agree do not sit on our assets register as investments. And our investment column is looking rather starved. Well we re-group, WE LOOK LONG TERM, we have the hard conversation and we devise a plan and take action. (hint: we contact PWH Wealth Group)
When tempted with that next boat, house, car etc we ask ourselves:
1. What purpose is this "asset" going to add to my life that will bring me closer to achieving my life purpose and financial freedom?
2. What impact will this have on my ability to save for the future I want? NOT Can I afford this "asset"
3. Will this "asset" appreciate in value (ie will I make money off it when I sell it) or depreciate in value (ie will I loose money when I sell it) - don't forget to take inflation into account?
4. Can I at any stage earn an income off of this asset?
I do agree that we all want to live in a nice house, drive the nice car and have the "toys" however, if we look back to a previous blog which included details on the presentation I attend about "Can money buy happiness" - the lifestyle assets have a glass sealing when it comes to happiness and this should be considered when we want to upgrade them at the expense of saving for our future happiness.