Every year when the holidays come around our money just magically disappears. Whether it’s presents, gas, trips, ham, whatever, come January we’re all scratching our heads like, “Wtf happened to all my money?!” It’s natural to get caught up in the stuff of the holidays, especially if you have kids. We bet you’re thinking “It’s ok, I’ve got my next check coming and it’ll all balance out eventually.” In reality, most of the stuff we buy becomes a liability instead of an asset. Meaning you’re losing money on useless stuff instead of making purchases that actually add to your net worth.
What Are Assets and Liabilities?
- Assets: This includes your house, car, savings, stocks, bonds, other investments, retirement accounts, and 401ks, property, etc. Any and all of your savings accounts should be listed separately and added up.
- Liabilities: Things like your mortgage, car loan, student loans, personal loans, and medical debt. Did you loan your Tio $2K and they never paid you back? Any family debts over $1000 are also considered a loss and can be written off on your tax returns and factored into your liability.
Buying your kid the newest iPad is a liability since Apple is just going to come out with the iPad 1000 in a few months. A pair of Louboutin’s or a Dior Saddle bag are assets since they generally do not depreciate in value or depreciate very little. Yes, you read that correctly. But before you go out and start buying your children red bottoms for Christmas, let’s take a sec to assess your net worth.
What is My Net Worth?
Your net worth is defined by your savings and investments minus your debts. To calculate it you’ll need to figure out your assets and subtract your liabilities. What is left over is your net worth. You can calculate your net worth here.
You’re probably realizing right about now that how much money you make is nowhere near as important as how much money you owe. Because guess what? If you make 50k a year and you have 65k in student loans and a car payment your net worth is in the red boo.
What you can do during the holidays is to spend money on things that are going to increase your net worth instead of subtract from it. This is of course if you’re not putting it on a high-interest credit card. Don’t put yourself in more debt to purchase gifts, everything becomes a liability if you’re spending money you don’t have.
Good Investment v. Bad Investment
If you’re going to spend over $500 on something for yourself, your kids, or your partner, ask yourself: Is this going to add to my debt load? Will this decrease in value, retain it’s value, or increase in value? Things that will increase your net worth are things like solid precious metal jewelry (i.e. gold and platinum), artwork, watches, designer bags, designer shoes, stock — anything that can be sold quickly for cash is a liquid asset.
Bad investments include things like expensive toys, electronics, cars, clothes and anything that loses significant value after you buy it. Diamonds are also a terrible investment. They are basically worthless on the resale market unless you’re talking something Kardashianesque in size.
So this year, instead of buying tons of things you won’t even remember 12 years from now, try to invest in stuff that will increase in value. Get your nieces and nephews stock, buy some gold earrings for your sister, and finally, remember that love isn’t something that you can demonstrate with stuff. It’s something you show with your actions and time spent.