The Fleeting Pleasures of Living Beyond Your Means

kelowna accountantHave you ever seen people with a lot of toys and wonder how they can afford to have them? Some of them can afford it by not spending on frivolous purchases daily or the Latte Factor. These types aren’t spending money on things they don’t need and are aware of their purchases so they can save their money to buy things they truly desire.

Other people are doing it by borrowing money to pay for that toy over 5 years. The problem is that the toy they are buying is a depreciating asset.  It is worth less everyday you own it.  For this reason, when you are buying things that are depreciating assets you should be paying cash for them and not acquiring debt.

 

Borrowing Is Occasionally Necessarykelowna accountant

Sometimes you do have to borrow money to buy things because vehicles these days are pretty expensive! Don’t go out and buy a Lamborghini when a Toyota could do the job.

Buy within your means, borrow within your means and borrow appropriately. If you are buying good assets with borrowed money, there is no problem.

If you buy assets that are depreciating in value with no opportunity to give you a return, then you have to question it and make sure you have enough resources to pay for it.

It is important to have a reserve of funds somewhere if things go sideways to protect yourself and buy yourself some time. A lot of people have equity in their homes but if is not available then you need time before you can access it. The only way you can get time to access that equity is by having reserves that temporarily keep you out of hot water.

Related: Top Secret Tax Breaks Your Kelowna Accountant Won’t Tell You

 

kelowna accountantThe Millionaire Next Door

There is a book called The Millionaire Next Door by Thomas Stanley and William Danko. It has a really interesting profile on millionaires and shows some surprising research about their habits and choices.

Most of us in our area live in neighborhoods within communities rather than way out in the country. You know that guy who is down the street driving the 1980s car and lived in his house for 30 years? He rarely misses a day of work and when the family travels, they go local. All of a sudden these people are millionaires because they aren’t overspending.

You would look at them and not peg them for the “millionaire type” based on the typical stereotypes because of the quality of life they choose. They don’t live beyond their means and they value their money.

A lot of North Americans tend live a lifestyle that exceeds their earnings.  They do not abide by the philosophy of living within their means and saving a little on a daily basis even though it could make them a millionaire one day.

 

kelowna accountantHow Long Do You Keep Your Vehicle?

I heard a guy on the radio yesterday and his car was running with over 400,000 kms on it. How many of us run our car to 400,000kms? Not very many because we think it’s old…but that’s not really efficient. We’re inundated with commercials that make us feel like we need to have the newer, better, brighter car everyday.

How many of us go out and buy a new car just because we don’t like the old car? It’s not because it’s the right thing to do…you’re never going to get your money out of a car, it’s a depreciating asset!

The longer you own a car, as long as you maintain it at a certain level, it will remain a good car and give you great value for your dollar.

This philosophy doesn’t just apply to vehicles but every aspect of your business and lifestyle. At some point you have to decide if you are truly getting enough satisfaction from the temporary pleasures of shiny new toys and a daily latte to justify the delay of your financial freedom.  Living beyond your means is all about choices, how about choosing to become a millionaire.

Related: 3 Bad Decisions Businesses Make During A Recession 

 

 

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