artofthecoupon.com

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

I know I am a little late to the game, but I wanted to post the best money advice I ever received. The advice, and I don’t remember where I heard it, boils down to the simple maxim: Never Pay Interest on an Asset that Doesn’t Appreciate.

I love this because it is so simple. Think about it from a practical perspective. Would you walk into a store and say “I like this $100 DVD player, can I pay you $110 for it?” Of course not. But, would you put it on a credit card with 10% annual interest and carry at least a $100 balance on a card for a year? When you pay interest on assets that don’t appreciate, you are effectively increasing the purchase price of every item that you own. You are paying more than market value of an item, and the more often you do this, the longer you stretch out the payments and the more you increase the cost of the items you are buying. Nothing will cut into your income faster.

This concept is further compounded by the fact that, for the most part, assets do one of two things: if they aren’t appreciating, they are depreciating. This may be nice for companies who claim tax deductions for depreciating assets. But, sadly I can’t claim “depreciation” of my DVD player and get the money back on my tax return. Instead, the asset that I just increased the price of (by paying interest to buy it) can’

t be resold even for its original (non-increased) value. This means that my initial investment (in which I paid more than the value of the product in the first place) is now worth even less, and if I ever needed to liquidate my assets I would not be able to come even close to recouping my investment.

Now, obviously there are some exceptions to this rule (like if you are starving and have no other possible way to buy food other than taking a loan). However, for the most part, this maxim is a good (albeit difficult) one to live by.