Do Your Assets Cost Too Much Money?
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It’s better to have more assets than liabilities, right? We love seeing the value of the things we own increase. Unfortunately, the value of our assets don’t always tell the whole story. In fact, instead of having income-producing assets, many of us have depreciating assets, or assets that might be time and money pits.
Do your assets cost too much money? If you want to optimize your finances (and possibly free up some cash to pay off debt), it can be worth evaluating your assets to see where you can save.
Are You Paying More for Your Car Than It’s Worth?
I’m sure most of you know how fast new cars depreciate when they’re driven off the lot. According to Black Book, the average depreciation of a car in 2015 is expected to be around 14 percent. That’s the average, though. Luxury and sports cars tend to depreciate even faster.
You might need one to get from Point A to Point B, but you don’t need to have the newest model or the nicest trim with all the bells and whistles.
Common advice for those with a lot of debt and expensive car payments is to sell the car and buy a less expensive one with cash. For example, if you own a pickup truck that costs you $400 per month in payments, $130 per month in insurance and another $300 per month in gas, you might be better off buying a compact car in cash and saving on all three expenses.
I’ll admit, I think simple is better when it comes to cars. I have a 2002 Honda Civic, and my fiance has a 2013 Civic (he financed it as his old car was on its last legs). I prefer my car because there’s less that can go wrong in terms of electronics. I also prefer not having a monthly payment, but that’s a story for another day!
This doesn’t just pertain to cars, either. Robin shared her story of purchasing a boat early on in her relationship with her husband and explained why she regretted it. I distinctly remember telling my dad years ago I’d like to buy a boat one day, and he basically said, “Have fun with that money pit!”
If you own more than one vehicle, ask yourself if it’s necessary. Some families can get away with one vehicle. The other reason I bring this up is because my ex owned both a car and a motorcycle. Unfortunately, we lived in an area where winter made driving a motorcycle rather difficult. So it sat in the driveway with a cover over it until the springtime each year.
He finally realized it wasn’t worth keeping. It was insured, financed and required a bit of maintenance (tires for motorcycles aren’t cheap). Being able to ride it half the year didn’t justify the expenses.
Is Your Home or Mortgage Too Big?
I heard so many people complain about how much their mortgage was when I lived in NY. The area I used to live in wasn’t known for being cheap – besides hefty home prices, property taxes were high, too. This sometimes made owning a home next to impossible for people. If they did own one, they often found themselves treading water.
Lots of people seem to justify buying a home by saying it’s an investment. That’s debatable (and I won’t get into it because I’m not a homeowner), but a home is probably the largest purchase you’ll ever make in your life. I think it requires a bit more thought than some people give it.
I’m guilty of walking around ritzy neighborhoods and marveling at the beautiful brick almost-mansion-status homes. However, I would never buy one. My 1,050 sq. ft. apartment is too big as it is! Unfortunately, many first-time home buyers are lured in by square footage because we’re taught to believe bigger equals better. And of course, more space also equals more stuff and typically higher utility bills.
The other day I was listening to a podcast discussion about housing and couldn’t wrap my head around it. A few homeowners were saying they could easily go back to living in smaller spaces (600 sq. ft.), but then one said they weren’t sure how they were going to fill up the 2,500 sq. ft. house they recently purchased.
I was left wondering why they bought it in the first place (perhaps they plan on having a large family). Don’t get me wrong – some people love living in a larger home and don’t mind having more rooms to clean. But I’ve seen just as many regret buying a house larger than they needed. It warrants asking yourself whether or not your house suits your needs.
A lot can change in a few years. Perhaps your mortgage is eating up a larger part of your income than you thought it would. Maybe you’ve grown tired of all the space you have. Maybe you don’t want to live in a high cost of living city anymore. Or maybe you’d rather downsize and use the savings to accelerate your way to financial or debt freedom.
Whatever the case, you should make sure your living situation is in line with your goals, as your mortgage can easily be one of the biggest reasons you don’t make a lot of progress. If you don’t want to change your living situation but need to make your mortgage less of a burden, think about renting part of your home out if possible.
Speaking of which, don’t forget to include rental properties in this assessment, either. You might find cutting your losses to be the better option.
Let’s not focus exclusively on physical assets when the assets in your investment portfolio matter, too. You want your money working for you as much as possible, right? One way to ensure that doesn’t happen is to be too passive of an investor.
How many times a year do you check your portfolio? Have you ever gone through your 401(k) plan to see if the investments are any good? Do you blindly hand your assets over to a financial advisor without knowing how much they charge? If you’re like most people, you don’t have or take the time to watch over your investments as closely as you should.
A free service like FeeX can help you find the best low-fee investment options in an old 401(k) plan. Also, someone like Personal Capital can help you get a good big picture view of all of your investments to easily spot ways you can cut costs and stretch your investment dollars farther.
All of these can lead to fees eating up your profits. I once looked through the investments my parents had in their portfolio and was astounded at the expense ratios for their investments. They fell under the “my advisor manages everything” umbrella.
When it comes to your investments and saving for retirement, it pays to be diligent about fees. Ignorance should be avoided.
Don’t Let Your Assets Become Too Costly
I’m someone who believes there’s always room for improvement. For example, I thought a 2-bedroom 2-bathroom apartment would be great in case my family came to visit. That’s only happened a handful of times since we moved. Even though my apartment isn’t an asset, I can’t wait to downsize to a 1-bedroom apartment to save money.
Remember that you don’t have to stay chained to a car or mortgage payment you can’t afford. I know that’s easier said than done when faced with the prospect of moving, especially if you’ve been in your current house for less than five years. Everyone has to run the numbers for their situation. You should at least think about cutting ties with the assets that aren’t moving you toward your goals, or figure out how to change them so they do.
Have you ever owned an asset that was costing you more money than you realized? What did you do about it? Did you buy a home that was too big or costly for you? Do you make sure you’re not being charged obscene amounts of fees for your investments?