Turn Losses into Gains
This is the last post of my series on Money Math. As my goal is to help you build a better mindset for money, I will make some reflections on my own mistakes and lessons learned along my financial path. And, despite losses along the way, I have learned to turn those losses into lessons for gain.
In my last post, Part 4, I reviewed the importance of using insurance to reduce your risk of loss. It is a tool that increases in value as you accumulate assets. I know many people who will not allow themselves to believe they can accumulate assets. And, with that attitude, they will fail to do so. My hope, though, is that you can develop the attitude that will allow you to accumulate.
You cannot allow setbacks to define you. I have had a few setbacks in my life. And I have found that staying hopeful and faithful will get you through those trying times.
Depreciation Is Depressing
The subject of depreciation can be depressing for most people. From my work in accounting, I spent a lot of time calculating depreciation on company assets as an expense for tax deductions.
There is a simple fact behind depreciation. Machines wear out! Regular maintenance will help to extend their useful life. However, the value does not hold steady.
To most who read this post, the message is clear. New cars, new appliances, etc. are always at a higher price new than used. However, most people want to buy new equipment to avoid doing maintenance.
My message and advice here is to do some calculations and research into what maintenance will cost and how available facilities are to do the maintenance. Determine your potential cost versus your potential savings for buying used equipment rather than new equipment. You may be surprised at how quickly you can accumulate savings!
Pay Your Taxes!
Since most people look at taxes as the enemy of their financial life, I thought I should add a little perspective on how taxes should be valued.
You drive to work on a paved road. Your family has the use of a public library, which has a wealth of knowledge available to you for free! You have firemen and policemen for your protection and protection of your property. These are just a few of the things of value that are paid for with tax revenue.
I know that some taxes seem high. Talk to your councilman or congressman about that. Meanwhile, value what taxes provide for you.
And, if you can afford to pay taxes, be thankful!
Get Your Own Natural Resources
Over time, if you do not already own land, you should put that on your list of goals. Land is a natural resource, as are the things that grow on it or that reside below it.
Land is a treasure. Many want it, which gives it more value.
As I have traveled across the United States, pulling an RV, I have noticed how much land is used for crops, including trees for paper products. Then, there are forests used for hunting and camping. There are lakes and ponds for fishing. Then, there is land used for pasture.
The volume of land without buildings far exceeds land with buildings!
You may have to look hard to find land available for purchase and possibly some distance from where you live. However, the population is expanding. You will be happy to own your own Natural Resources!
You Can Appreciate Assets that Appreciate
There is a good reason for my reference to accumulating assets over your lifetime. The reason is simple. How well you are able to retire will depend on how many and what kind of assets you accumulate.
Accumulation of assets will be the result of the following:
- Your effort to earn an income.
- Your effort to control your spending.
- Your effort to stay healthy.
- Your effort to protect and maintain your assets.
- Your effort to learn about investing and what gives assets value.
And, in your efforts related to investing, you must learn about what makes them appreciate.
I have previously used the term compounded earnings, which is a form of helping an investment to appreciate. But there are other forms of appreciation.
From my experience as a real estate agent, I know property with a house does not increase in value on its own, as land often does. When trying to sell a house, the seller must work to make the property appealing. After all, the buyer does not want the added cost of making improvements to satisfy their living requirements. Only a reduced price would make that an incentive. So, take care of your house if you plan to sell it soon!
By improving the functionality of any property, including a farm, you can help to increase its value. In this reference, appreciation means an increase in value. And, as you accumulate assets, you will appreciate appreciation!
Raised Children in Your Way?
As a parent, I have and know other parents who have had to endure the difficulty brought on by their children having financial struggles, often of their own making.
This is a period in your financial life that must be kept short and with limited financial help. Otherwise, you will become their financial crutch!
That is a difficulty I hope you never have to face. However, to prevent that from happening, you must teach your children well while they are young. Habits become our way of life. So, give them some good habits to follow!
A couple of books to consider reading to help you in this process are as follows:
- The Millionaire Next Door, by Thomas J. Stanley, Ph. D. and William D. Danko, Ph. D.
- Rich Habits Poor Habits, by Tom Corley and Michael Yardney.
Both books note the importance of having children who can handle their own financial affairs, sometimes by using you as an advisor not as a bank!
As to the steps and the process for raising financially stable children, I suggest starting with reading another book, Make Your Kid a Money Genius (even if you’re not), by Beth Kobliner.
She talks about 14 Rules for Talking to your kids about money for ages 5 – 12, which sounds young to most parents. Then, she notes 7 things you don’t need to tell your kids about money. These are mostly your financial data that should be kept private. Kids talk!
The 14 Rules by Beth are:
- Start early.
- Keep it age appropriate.
- Use anecdotes.
- Use numbers.
- Don’t lie about your money past, don’t overshare.
- Never fib about how much money you have on you.
- Identify your financial baggage—then leave it behind.
- Keep money fights quiet.
- Don’t expect money skills.
- Share the talking about money.
- Avoid a money gap, as to who knows what to do.
- Don’t try to keep up with the Joneses, because you will teach your kids to do the same.
- Choose your moment—and space.
- Don’t flaunt bad money behavior in front of your kids.
Think back. Did your parents talk about money to help you manage it well?
Remember, Beth notes that kids talk freely about things at home. So, avoid any details about the following:
- Your salary.
- Which parent makes more money.
- The amount in your 401(k).
- Your belief that a relative is cheap/rich/a deadbeat.
- How much you pay the sitter/nanny/tutor.
- What you spent on a gift.
- How much you worry about paying for college.
Previously, I mentioned the effect of inflation on your future spending power of savings and investments. However, any issues your children may cause with their problems managing their money can have a much greater impact than inflation!
Raise your children well when it comes to managing their money. The dividends for your effort to teach them will compound to your benefit over time!
Also, we always learn more than the student when we teach!
Developing a Financial Formula
I hope you have followed this series on Money Math. There are lots of formulas to keep in mind as you calculate your budget and make your spending and savings decisions.
Experience will teach you what formulas you need to use or forget to use. The key is to learn from your losses. Then you can gain the right understanding for better money management that can lead to good investments.
My hope is that you can start developing your own financial formula for success!