{"id":71334,"date":"2020-09-27T15:00:29","date_gmt":"2020-09-27T21:00:29","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=71334"},"modified":"2024-02-23T15:56:30","modified_gmt":"2024-02-23T22:56:30","slug":"2015-03-21-3-negatively-cashflowing-assets-devastate-20-somethings-finances","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2015-03-21-3-negatively-cashflowing-assets-devastate-20-somethings-finances","title":{"rendered":"3 Negatively Cash-Flowing &#8216;Assets&#8217; That Can Devastate Your Finances"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC9472519061&amp;light=true\" width=\"100%\" height=\"200\" frameborder=\"0\" scrolling=\"no\"><\/iframe><br \/>\nAs I look around at my peers and friends, I find that many of them are unable to correctly distinguish between an asset and liability. Some of my buddies are accumulating liabilities at an alarming rate, all the while thinking that these things are assets and will &#8220;pay off in the long run.&#8221;<\/p>\n<p>In this article, I want to describe some of the most commonly misconstrued &#8220;assets&#8221; and the devastating financial impact they can have on your personal balance sheet.<\/p>\n<p>Granted, some folks are quite content to sacrifice their balance sheets for the comforts and luxuries I list below. I&#8217;m not suggesting that these things are wrong, but I will state that the items below should NOT be considered &#8220;assets&#8221; and should be recognized for what they are: <i>insanely<\/i> expensive luxuries that can delay higher objectives (like financial freedom) indefinitely.<\/p>\n<h2>3 Negatively Cash-Flowing &#8216;Assets&#8217; That Devastate Finances<\/h2>\n<h3>\u201cAsset&#8221; #1: A Financed Car<\/h3>\n<p>I myself am guilty of this one. Even an \u201ceconomy car\u201d like a 2014 Toyota Corolla is a huge financial hit when financed new. Payments will continue for years, plus leverage against a depreciating asset (meaning taking out a loan to pay for the car, when there is a 100% chance that it will decrease in value over the duration of the loan) is a surefire way to compound losses over time.<\/p>\n<p>A while ago, I tried to sell that exact vehicle mentioned above. I quickly found that folks aren\u2019t interested in buying a brand new car from an owner who\u2019s had it less than two years. Turns out private buyers are distrustful of my motivations, and of course, I would never get a great deal from a dealer. It was a painful financial lesson that I won\u2019t be forgetting anytime soon.<\/p>\n<p>A financed car costs a tremendous amount of money per month, and in addition, incentivizes the use of vehicle transport more often because of the huge fixed expenses that come with owning a car. (\u201cWell, I already paid for it. I might as well use it!\u201d) This hurts your wallet even more in the form of variable expenses like gas, maintenance, parking. That\u2019s not to mention the subtler financial burdens of frequent driving, like increased insurance premiums, and of course, the risk of a collision that increases with every mile driven.<\/p>\n<p>If you can\u2019t afford to pay cash for your car, then it is probably a good idea to question whether you can afford to own a car in the first place.\u00a0There are plenty of alternatives to owning and driving a car regularly that are employable by the vast majority of Americans. Don\u2019t make the same mistake that I did.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-102706\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/09\/rent-car-turo.jpg\" alt=\"rent-car-turo\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/09\/rent-car-turo.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/09\/rent-car-turo-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><em><strong>Related:<\/strong> <a title=\"Is Financial Failure Due to Lack of Motivation? Why Money Issues Run Rampant\" href=\"\/renewsblog\/2015\/02\/14\/financial-failure-due-lack-motivation\/\" target=\"_blank\">Is Financial Failure Due to Lack of Motivation? Why Money Issues Run Rampant<\/a><\/em><\/p>\n<h3>\u201cAsset&#8221; #2: A Financed House<\/h3>\n<p>There are three ways to design your living situation, each better than the last\u2014you can rent, you can buy a nice single-family home, or you can house hack.<\/p>\n<p>Renting is by far the worst financial decision in most markets. Every dollar you spend on rent is a 100% loss that you will never see again. It is imperative to move away from the status of \u201ctenant\u201d as soon as possible.<\/p>\n<p>Anyone who\u2019s read <a href=\"https:\/\/amzn.to\/30d9XQO\" target=\"_blank\" rel=\"noopener noreferrer\"><em>Rich Dad Poor Dad<\/em><\/a> understands that a primary residence occupied solely by one\u2019s family is not an asset. It is a liability with negative cash flow. All else being equal, homeownership is usually superior to renting, but a huge portion of the monthly upkeep still leaves your pocket.<\/p>\n<p>We at BiggerPockets understand the difference between an asset and a liability and seek the clearly superior solution of owning a small multifamily property, living in one unit, and renting out the remaining units. Intelligently buying small multifamily properties and renting out the remaining units can provide enough cash flow to pay down the mortgage and cover the operating costs of the property, enabling you to cover the largest single expense in most American lives\u2014housing.<\/p>\n<h3>Asset #3:\u00a0A Financed Degree<\/h3>\n<p>Education is great. We\u2019ve all seen the studies about how much more money people make over the course of their careers when they go to college, grad school, or become doctors and lawyers. I\u2019m not here to argue with that. It is absolutely true that over the course of a 40-year career, you will likely earn <em>way<\/em> more money with higher education.<\/p>\n<p>But only if you have a 40-year career. And only if your goal in life is to <i>actively<\/i> earn a lot of money.<\/p>\n<p>Investors, like those of us on BiggerPockets, are well served to be wary of business school,\u00a0law school, medical school, or similarly\u00a0expensive\u00a0educations. In most cases, this schooling can significantly\u00a0delay one&#8217;s\u00a0ability to accumulate net worth and the corresponding passive income that increases opportunity and frees up your time.<\/p>\n<p>There are two main reasons why folks who are pursuing financial freedom might want to watch out for education beyond a value-centric college degree.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-98065\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/03\/graduates.jpg\" alt=\"\" width=\"702\" height=\"365\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/03\/graduates.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/03\/graduates-300x156.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><strong>Reason #1: The Financials of the Education<\/strong><\/p>\n<p>Grad school is expensive\u00a0and average debt load is <a href=\"http:\/\/www.bloomberg.com\/bw\/articles\/2014-03-25\/student-loan-debt-piles-up-for-graduate-students-but-not-mbas\" target=\"_blank\" rel=\"noopener\">roughly $57,600<\/a> for MBAs, though this will vary depending on your degree and university. On top of that, you miss out on the potential income you could have earned and invested while studying and spending at graduate school.<\/p>\n<p>If your goal is to become financially free or take control of the finances of your own life, this will set you back.<\/p>\n<p><strong>Reason #2: The Mentality of the Education<\/strong><\/p>\n<p>Suppose that you are pretty smart and go to Stanford or Harvard for business school. Two years later you emerge with a degree from one of the finest institutions of business learning in the world and ask yourself, &#8220;What do I want to do with my life?&#8221;<\/p>\n<p>Well, because you have a $200,000 degree from an elite school, guess what? Every single option you had in life prior to starting business school now makes <i>less sense<\/i> except one: working a high-paying job with long hours at a large corporation.<\/p>\n<p>You are now backed into a mental corner. Are you now free to work at a surf shop, take six months and backpack around Thailand, or even invest in low-end real estate? Of course not. You&#8217;ve got an MBA from Harvard! The MBA you are pursuing eliminates quite a few good options from your toolkit and replaces them with a small minority of dull jobs where you sacrifice the best part of your day for a hefty salary and bonus\u2014most of which are used to pay down the financing on that very same education.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-123092 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/02\/crystal-ball-future-702x336.jpg\" alt=\"Landscape concept with crystal ball or esphere in hand during sunset on beach\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<h3>Bonus &#8220;Asset&#8221;: The Cash-Flow Negative Spouse<\/h3>\n<p>You\u2019ll know this one when you see it. This is the husband who is too lazy to get a job and hits up the bar every night or the stay-at-home mom who spends thousands on designer clothes and jewelry and expects a fancy dinner out at a nice restaurant every week.<\/p>\n<p>Finance is both an offensive and defensive sport. It is imperative that both partners contribute to the family&#8217;s bottom line either by contributing income or enforcing a budget and financial discipline. A lack of alignment can result in devastating consequences that not only leave couples in dire financial straits but also ruin relationships.<\/p>\n<p>This is probably the most important \u201casset\u201d to avoid in ensuring your long-term financial and mental well-being. If you\u2019ve got a spouse who is committed to helping the family achieve its long-term goals, then avoiding the other &#8220;assets&#8221; on this list becomes much more achievable.<\/p>\n<p><em><strong>Related:<\/strong> <a title=\"Using Real Estate to Escape the \u201c9 to 5? and Find True Freedom\" href=\"\/renewsblog\/2014\/08\/17\/found-freedom-real-estate\/\" target=\"_blank\">Using Real Estate to Escape the \u201c9 to 5? and Find True Freedom<\/a><\/em><\/p>\n<h2>Conclusion<\/h2>\n<p>Are you accumulating assets or liabilities in your life?<\/p>\n<p>Everyone makes mistakes, as I did when I bought my brand new car fresh out of the dealership. It&#8217;s all about mitigating those mistakes, learning from them, and applying future capital to the things that will truly improve your life over the long run.<\/p>\n<p>Those are <em>real<\/em> assets.<\/p>\n<p>I don&#8217;t need a car, a house on a hill, or a fancy degree. I can get around quickly, healthily, and for free on my bike, live for free in my duplex, and learn and network for free here on BiggerPockets. I consider those to be some of my best assets.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/store\/set-for-life-paperback-ultimate?utm_source=blog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-94633 size-full\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/financial-freedom-book-ad.jpg\" alt=\"\" width=\"800\" height=\"130\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/financial-freedom-book-ad.jpg 800w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/financial-freedom-book-ad-300x49.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/financial-freedom-book-ad-768x125.jpg 768w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><\/a><\/p>\n<p><em>What liabilities do you see people incorrectly viewing as &#8220;assets&#8221;?\u00a0What would you add to my list?<\/em><\/p>\n<p><strong>Leave a comment below.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why is it that so many young adults face a dire financial future? Here are a few faux &#8220;assets&#8221; (read: liabilities) that tank hope for financial freedom.<\/p>\n","protected":false},"author":1676,"featured_media":120708,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7119,4433],"tags":[],"class_list":["post-71334","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpockets-daily","category-opinion"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/71334","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1676"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=71334"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/71334\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/120708"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=71334"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=71334"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=71334"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}