Australia is one of the wealthiest nations on earth.
Our standard of living truly reflects the maxim, ‘The Lucky Country’.
So it’s easy to justify the way we indulge ourselves in material pleasures.
We’re huge consumers.
I’ve always loved toys.
Motorbikes, cars, four-wheel-drives, audio gear, photography gear, camping gear, gadgets – all of them!
I even loved the smell of my Bowers & Wilkins speakers when I first brought them home…
But danger lurks here, and most of us are succumbing to it all the time.
For a long time, I did, too.
What I’ve learned is that if you don’t use your head instead of your heart (or your adrenal gland, or whatever it is that makes us buy these things), toys will keep you broke!
Through much pain and many sleepless nights, I’ve learned that the only way to buy them is with cash, (or cash deposited into your credit card first) and only when you can afford them.
Let me explain.
Say you’ve been lusting after a $30,000 Harley.
If you stick that money into an index fund earning 7.5% p.a., it will turn into $133,825 in 20 years (or $282,646 in 30 years)!
Alternatively, use that $30k as a 10% deposit on a $280k townhouse in the right area, and if it grows by an average of 6% p.a., you’ll have an asset worth $1,686,321 in 30 years, plus a raft of tax deductions.
That’s a gross profit of $1.4 million!
Do you really need that brand new Kawasaki or that Harley?
Could you instead buy a $12,000 bike and invest the difference?
The money you spend today on any lifestyle products (boats, motorbikes, holidays and tech gadgets) are all terrible applications for debt financing.
Well, like the car, they all depreciate quickly.
The holiday does this instantly!
Also, they don’t produce any income, nor can you enhance their value.
And if you want to recover any of their remaining equity, you have to sell.
By the way, if you think a holiday house is an asset, in most cases, you’ll be wrong.
For one, banks hate lending against properties that have seasonal or holiday occupation and their LVR (loan to value ratio) and interest rates usually reflect this.
Second, the servicing and maintenance costs can be very high, eating into returns, whilst seasonal vacancies can be a real problem from a cash flow and security standpoint.
If you want a holiday house, rent one instead.
Our family rents luxury multi-million dollar houses during the low season and we pay peanuts for the privilege.
What’s more, we stay in a different one every time.
It beats the hell out of ‘owning’ one, that’s for sure.
The bottom line is, in a country as rich as ours, it’s tempting to ‘reward’ ourselves with trinkets and toys.
The number of marketing messages we’re exposed to every day only reinforces that behaviour, too.
But if we really want a rich life, a secure future and a life of financial abundance, it pays to be intentional about where and how we allocate our limited resources.
A few simple adjustments like the examples given here can mean the difference between a house full of depreciating crap and a life filled with lasting happiness.
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