Right now, it’s a great time for me as a father because my daughter is at the age where she is comprehending the value of money and is asking a lot of questions. A couple of days ago while going to her lacrosse practice, we got on the subject of whether to buy a new car. We were driving and saw some old trucks and I said that those cars are older than ours and still running. I have an SUV that is 12 years old and has 174,000 miles. It runs fine. I asked my daughter if she thought it was a good idea for us to get a new car and she goes sure. Then I started talking about assets and how certain assets appreciate and depreciate. One day she’ll need to know the concept of appreciation vs depreciation.
Appreciation, in terms of investments, is where an asset grows in value over time. Essentially, you buy something today and some time in the future that asset is worth more. Your asset has appreciated. These are the assets that you want to invest in to make your money grow. Some typical assets you think about in terms of appreciation are your home and stocks. If you are a home owner, you’re going to want your house to go up in value by the time you sell. With any investment there is always that “it depends” line. Zillow wrote that nationally home prices appreciate 3-5 percent. In some areas it could be more or less.
Stocks is another investment you want to grow. You invest in a company stock or fund because you believe that the company will grow or that index sector will grow resulting in your investment growing. Other assets that appreciate is land, real estate, and gold. I’ve had a good experience with real estate investing and it is one piece of my financial portfolio.
Depreciation is essentially the value of an asset through the course of its use which means the more you use it the less value it is. You heard the saying once you drive a car off the lot it just loss value. Carfax says that a new car can lose more than 10% of their value the first month. These are the assets you want to limit spending your money on. Don’t get me wrong, we do have to buy assets like a car to get us around. We don’t need to buy a new car every 3 years though. Another asset that depreciates is technology. If you ever tried to sell your old phone or traded it in for an upgrade, you know that you’re not getting close to what you paid for.
Understanding the value of the things you buy and spend on is very important. Investing your money on things that appreciate will build value and financial growth. Talking through topics like this with my daughter are great discussions and she asks questions that actually makes me think about my financial strategy. Take the time to think about where your money is being spent and invested, and keep in the back of your mind the value of appreciation and depreciation. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook.