Spend Well, Live Rich How to Get What You Want with the Money You Have

Chapter 1 MANTRA #1: "IF IT'S ON YOUR ASS, IT'S NOT AN ASSET" Think about the word asset. What exactly does it mean? An asset is an item of property, a person, thing, or quality, regarded as useful or valuable. That definition is broad enough to allow most people to justify most of what they buy as an asset. You convince yourself to buy a big, expensive car because it will "hold" its value in case you want to sell it later. But selling this asset usually means acquiring debt to obtain another car. Doesn't that defeat the purpose? Does a banker consider your Lexus an asset? Does it improve your chances of getting a home loan? Not if you still owe money on it. We amass a great deal of things, but how much of that stuff maintains its value? Did you know that there are more than thirty-five thousand self-storage facilities in this country? Americans' houses and garages are overflowing with so much stuff that we have to rent extra space to keep it in. I know someone who rented space in a self-storage facility for her clothes because she ran out of room in her closet. Crazy! I want you to think about all the stuff you have because, ultimately, I want you to determine whether too much of your income is being devoted to servicing debt to pay for personal property that depreciates every year. There are four types of assets that make up your net worth. Three don't require you to rent self-storage space and are more likely to put you on the path to financial security. They are called appreciating assets. Common definition of appreciating assets: Assets that have the potential to increase in value and/or produce income. Commonsense definition: Assets that you don't wear or drive and that will help keep you from asking at age seventy-five, "Would you like a shake with those fries?" Appreciating assets include the following: *Liquid assets. Cash or other financial assets that can easily and quickly be converted into cash with little or no loss in value. Liquid assets include checking, savings, and money-market accounts and certificates of deposit. *Investment assets. Assets held for their potential to appreciate, or increase in value. They include stocks, bonds, and money in a mutual fund. *Real property. Land and things attached to it (house, garage). This is by far the greatest source of wealth for American families. The second asset category is personal property. This includes your automobiles, furniture, clothing, and electronic equipment. Technically, personal property is counted on the asset side of your personal balance sheet. However, once you walk out of the store or drive off the car lot with this type of asset, it immediately loses a great deal of its value. These assets are otherwise known as depreciating assets. Common definition of depreciating assets: Assets that lose their value over time. Commonsense definition: Assets that may make you look good but don't do a darn thing to make you rich. Want to see how much of your income is spent to acquire assets that aren't likely to make you wealthy? It's not a perfect formula, but figuring out your debt-to-income ratio will give you some idea of where your money is going. This is a number, expressed as a percentage, that compares the amount of your debt (excluding mortgage or rent payment) with your monthly gross income. Mortgage lenders look at the debt-to-income ratio all the time. When you apply for a mortgage, a lender will first determine the percentage of your gross monthly income that goes toward housing expenses. Common definition of gross pay: Income before taxes, deductions, and allowances have been subtracted. Commonsense definition: Income you wish you brought home before everybody and their mama, including Uncle Sam, gets their cut. Typically, your monthly housing expense should not be greater thSingletary, Michelle is the author of 'Spend Well, Live Rich How to Get What You Want with the Money You Have', published 2004 under ISBN 9780375759048 and ISBN 0375759042.