Joy Black is a pseudonym of Linda Banks, a freelance market researcher and writer and is used when Linda publishes her personal articles. Linda spent more than 13 years in the corporate world working her way up from a telephone operator at GTE to an IT Director of JLG Industries. During this time, she earned her MBA in Technology Management. When a buyout of JLG left her as one of the "laid-off" ones, Linda decided to stay home for her family and start her own business.
Through her personal blog - Linda recounts daily life in her household and links to her own published works on the right hand side. Some are technical in nature, while others, including the Superman incident, are true life as recounted by a working mother and wife with two too many animals and way too many chores that don't get done.
Sometimes it’s hard to tell. Picture this – you drive home after a long day of work for too little pay and you see neighbors with fancy new houses, brand new cars, beautiful landscaping and all the newest toys. You think to yourself that they must be rich – right? More than likely – the answer is no. In fact – they are probably in debt up to their eyeballs with few financial assets. This sounds like a contradiction since they have so much stuff, so let’s take a look at what an asset is in comparison of a liability.
Sometimes it’s hard to tell. Picture this – you drive home after a long day of work for too little pay and you see neighbors with fancy new houses, brand new cars, beautiful landscaping and all the newest toys.You think to yourself that they must be rich – right? More than likely – the answer is no.In fact – they are probably in debt up to their eyeballs with few financial assets. This sounds like a contradiction since they have so much stuff, so let’s take a look at what an asset is in comparison of a liability.
Basically – an asset makes more money for you than it costs over its useful life.In contrast, a liability costs you more money than its worth over its useful life.
For most people, an automobile is a liability. We have the mindset that a new fancy car is a sign of wealth and therefore, must be an asset. However, the opposite is true. Let’s go over the figures to see why this is true. A new automobile can cost $35,000 or more. Add in the interest paid on the loan, money for maintenance, gas and full insurance coverage. In five years, you trade it in to get a new one and guess what? You’re lucky to get $8,000 for the trade-in! In terms of a money-making proposition, this vehicle has cost you much more money than it will ever make you.
Let’s now look at an example of an asset. Real estate – especially your own home - is one example where you truly can make more money over the long haul. Examples are everywhere of people buying homes and selling for double the original cost. This doesn’t mean that you’ve absolutely doubled your investment. As in the automobile example, you must subtract real estate fees, taxes and maintenance fees to get a good understanding of how much your real estate investment made for you. But – over the long run, even taking into account the value of a dollar, many houses are an asset to a person’s bottom line.
What is so tricky about these two examples is that for most people, automobiles and a place to live are necessities. Even if an automobile loses you money, you absolutely must have one in order to keep your job. And – with a house, even a small profit or a small loss may be worthwhile when compared with renting or leasing a place to live.
When pondering such a big purchase or when creating your budget, keep in mind what that purchase is going to do for you in the long term. Do you really need a $75,000 vehicle or will a $25,000 one provide the same functionality and meet your needs? If you are going to build a house, are you building within a realistic budget, in a geographic-growth area so your house will likely appreciate in value? By honestly asking yourself these questions, you can avoid the pitfalls of having loads of “stuff” but barely being able to pay your bills each month because you are poor.
Results of surveys done on self-made millionaires show that most live in modestly – owning middle-class houses and buying only used cars. After all – they become rich by saving their money instead of spending it. Or – more accurately they spend their earnings wisely and will splurge on those items that are likely to be assets while scrimping on items that are liabilities. Start thinking in those terms and you will soon have financial stability, which leads to financial freedom. After all - do you want to work hard for your money or make your money work hard for you?