Depreciating assets are those that go down in value over time. Most of these assets suffer from wear and tear which affects their market value. In a financially savvy investor’s viewpoint, purchasing lots of depreciating assets is a terrible investment. When you invest more on depreciating items than appreciating ones, your net worth will drastically become lower.
In many cases, depreciating assets actually increase your rate of spending, because they require additional expenses for maintenance. Take a look at these 10 most common depreciating assets that may affect your net worth.
1. Cars — Cars are depreciating assets, because they rapidly lose value as they age. They also need to be insured, maintained, and repaired, further increasing the cost of owning and using them. According to Forbes, the cost of driving a $25,000 vehicle over five years will be $33,604. This means that you’ll incur much higher loss on your vehicle investment.
2. Motor Vehicles — Like cars, other motor vehicles such as trucks, boats, lawn mowers, and jet skis, are depreciating assets. At times, the cost of repairing a major damage is even higher than the vehicle’s worth.
3. Jewelry — Luxurious items, such as jewelry, are typically sold at a high price. However, as soon as you buy them, their price immediately drops to half of the original price, because secondhand goods always have a lower price. Moreover, when it comes to jewelry, consumers always want the latest styles and designs.
4. Computer equipment – These include desktop, laptop, keyboard, mouse, printer, and any other peripheral computer equipment. Most manufactured products, especially computers, depreciate as time passes. Computers are always in high demand, that’s why you’ll constantly find newer and better models with more attractive features than the ones you presently own. A popular computer model that you purchased this year will be worth less in the next years.
5. Data Handling Equipment – Copiers, calculators, and typewriters are data handling equipment that quickly depreciate in value.
5. Electronic equipment — Electronic equipment are likewise not worth much. Their lifespan often lasts several years only, and they require replacement of spare parts as they go through wear and tear.
6. Furniture — Whether you’re purchasing a couch, a cabinet, or a mahogany table, all furniture are immediately worth less after you buy them. Their value becomes lesser over time, as they wear out and become outdated.
7. Appliances – Home appliances such as refrigerator, washing machine, stove, television, and sound system have a finite life and decline in value through regular use.
8. Cell phones — An $800 iPhone will be worth a few hundred dollars less the following year. Expensive devices and gadgets such as cell phones also require costly expenses such as app purchases, game purchases, and repair.
9. Tools — Tools are useful for repairing things, but they are still depreciating assets. Avoid purchasing unnecessary and expensive tools that you may not have to use often.
10. Machinery – Any item with an engine decreases in value rapidly.
To build your financial future, you need to invest in assets that contribute to your net worth. Consider investing more on appreciating assets, and if purchasing depreciating items can’t be avoided, ensure that there’s a balance between appreciating and depreciating assets.
The next time you think about getting a new car, be aware that it’s a bad investment. Buying a new car is simply wasting money that could be spent on other worthwhile investments such as high dividend paying stocks. Instead of choosing a brand new vehicle, go for a secondhand car that’s more than one year old. This way, you won’t lose your investment money to the first year of massive depreciation. Moreover, pay cash to save on finance charges.