by: Dr. Scott Brown, Ph.D.
Have you ever wondered why so many solid businessman drive cruddy, old cars from a dingy, run down offices to their palatial homes in the suburbs? Warren Buffet, perhaps the greatest investor alive is known for this. The reason they live this life style is not because they are cheap misers but because they have a high level of financial intelligence that you can develop as well.
They understand that if they have $90,000.00 that they could either put that money into
1. reducing their debt
2. invest it into the stock market
3. selective home improvements
4. improve the appearance of their business facilities (I am assuming that this doesn’t have an appreciable impact on their profitability and believe me it almost never does despite excuse mangers make to blow money)
5. buy a new Mercedes Benz for themselves
6. buy their children a new car.
The first two choices increase your net worth (equity) which is always a good thing and equity is not taxed. The third choice increases your enjoyment (utility) of your home. If you remodel your kitchen or bath appropriately you may also increase your equity. So if you have spare cash in excess of your debts and a solid investment, savings plan than this can be a good choice as well.
The fourth and fifth choices are TOTAL wastes of money because your business sits there for you to suck money out of and nothing else. A car loses a quarter of its value the moment it is driven off of the lot and then continues its downward slide to nothing. Depreciating assets are not investments they are financially undesirable necessities if you can’t walk everywhere you need to go. An automobile is a financially undesirable necessity, nothing more, nothing, less.
The very last choice is the worst possible use of your money. Not only do you waste your money but you also teach and reinforce financial mismanagement in the minds of your offspring. Your children learn that they do not have to work for anything they want. Worse still they will mentally assign a value to the automobile relative to the amount of effort it took for them to acquire it and that is zero.
In Steven Silbiger’s book “The Jewish Phenomenon” he describes in other ways why this concept of being prudently frugal yet selectively extravagant is a major key to the extraordinary wealth of the Jewish ethnicity. He shows clearly how Jewish families use this wisdom to convert their income into lasting wealth. Don’t forget that this wisdom is not restricted to Jews and in fact is the underlying lying cause of financial stability in high income families of low income ethnicity. The most enduring wealth of course is a debt free life style with adequate passive income and the knowledge to recoup it all if lost.
About The Author Dr. Scott Brown a.k.a. “The Wallet Doctor” holds a Ph.D. in finance from the University of South Carolina and is a professor of finance at the University of Puerto Rico. Dr. Brown can teach you how saving the daily price of a cup of coffee at Starbucks can make you a millionaire in the stock market through long term stock investing. Dr. Brown's website is: http://www.walletdoctor.com/. |
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