My little sister worked for a law firm that did repossessions when she was in high school. She literally called to repossess people’s cars and boats on Christmas Eve (“What? They shouldn’t have *bought* a bmw if they couldn’t afford it.”).
One of the big things that she learned from that job is to never borrow to invest in a depreciating asset.
When you buy a depreciating asset, you can end up owing more for that asset than what it’s worth. You can have that car taken away and *still owe money on it*. So you’re left with no car and a debt. You would have been better off without the temporary BMW in the first place.
If you’re going to invest, whether or not you borrow, then invest in appreciating assets. Things that will be worth more in the future.
Because when you invest in appreciating assets, that means you get to consume more rather than less in the future. You get to consume more in the future with less effort. Because your investment is making money for you and providing stability.
Get rid of high interest debt. That’s a huge drain and is just throwing away money that could instead be keeping you safe or providing for guilt-free career changes or trips or what ever it is you’d rather have than debt.
Invest in yourself. It makes sense to take a reasonable debt load for education that will pay off monetarily in terms of income down the line. And it is true that cars depreciate right off, but when you’re starting out if you’re in a place with lousy public transportation, it can still make sense to take out a car loan because that appreciating asset is *you*. (That doesn’t, of course, mean you should be buying a BMW when all you actually need is safe and reliable transportation.)
Invest in reducing risk. Have an emergency fund in safe assets like a CD ladder or a saving account. Buy amounts of insurance that are right for your situation. That way an emergency won’t put you back to zero or less.
Invest in your monetary future. Put money away for retirement in tax-advantaged accounts. Put extra money in the market or in bonds as a FU fund in case times goes bad or you get an amazing opportunity. Your future self will thank you.
And after you’ve invested, then there is nothing wrong with consuming. But don’t borrow to consume a depreciating asset. Let the profits from your appreciating assets fund your extra consumption. Because then you won’t have to write blog posts about how you can’t make ends meet on necessities because you have all this high interest debt that you’re not paying off (even with your high income) because of all the stuff you buy and trips you take. You’ll be able to buy the stuff and take the trips without complaint after the debt is gone and you’ve taken care of your future self.
Have you ever borrowed to invest in a depreciating asset? Do you invest in appreciating assets? How do you manage risk?