This is as straightforward as the title is “do not spend your money on holidays, fast cars, and clothes”. I stand by this but I need you to read to the end before you decide whether or not I am talking rubbish. The actual technical name of what we call money is currency, the word that has it roots in the word current. Current by nature is characterized by movement, that means your money moves. It always has to move, and it fluctuates in value. It never stays with you forever you exchange it for something of some value to you. The job of every financially smart person is to hold down money into a place, a resource or a format where it, as a minimum, holds or increases its value before it leaves your hand to flow to another place. That format is called an ASSET.
Robert Kiyosaki gave the simplest definition of an asset I have ever heard; “ anything that puts money into your pocket is an asset”. A liability on the other hand is “ anything that takes money out of your pocket”. So holidays, fast cars and clothes are liabilities. And we all know that if you have more liabilities than assets it’s just a matter of time you will break financially.
“ anything that puts money into your pocket is an asset”. A liability on the other hand is “ anything that takes money out of your pocket”
I believe that the purpose of currency (money) is not for spending on liabilities; the purpose of money (currency) in my opinion is to purchase assets which in turn generate the money to create the standard of life we want. The fact that I am able to take my kids to Disneyland out of my salary and while I am there maybe I meet Bill Gates who is also there with his kids, In theory both myself and Bill Gates can ‘afford’ to take our kids to Disneyland, but my spend has reduced my salary but Bill Gates will not be paying for that visit from his salary, he will probably the paying it from a tiny piece of dividend from his many shares (assets) in Microsoft. I become poorer from that visit but he is not affected because he is spending not his current monthly income but the income from his assets, assets which continue to grow and appreciate in value, while my salary decreases and I await the next top up. That single spend therefore does not affect his current standard of life in real terms.
the purpose of money (currency) in my opinion is to purchase assets which in turn generate the money to create the standard of life we want
I like holidays, fast cars and clothes as much as the next guy; but the day I can get all these paid for by the yields from assets, rather than my immediate income; then, I would have had my finances in control.
Use the currency in your hand to purchase assets that will yield the returns you require to live your desired standard of life. Many people struggle to know what things are considered assets, I will therefore list some here for you. Property, insurances (in case things go wrong and my, do they go wrong?), pensions, investment accounts, bonds, brands, copyrights, distribution rights, distribution networks, patents, royalties (from books, music or related intellectual property), trademarks, buildings, equipment, Art work, jewellery, businesses, training materials among others. I hope you note that a savings account is not listed on the asset list, why will you keep currency whose value moves every time and usually in the depreciation direction? I am for short term savings that enable you to acquire assets; long term currency saving is not a financially smart move in my opinion, because your money is usually worth less than its value on the day you put it in, usually in spite of the so-called interest.
Use the currency in your hand to purchase assets that will yield the returns you require to live your desired standard of life
Now you know what you should be spending your time and currency on.
All the best
Pound Notes Picture- https://www.flickr.com/photos/v1ctor/