- Imagine a $300 bike.
- It sits permanently in your garage.
- It now sells for $225 a year later.
The depreciating factor of the bike hits you hard; yet, that's not the bad part.
The crazy outrageous thing that's really rocking you is the opportunity costs of keeping your bike permanently in your garage.
Instead of seeing the value of what you own decrease constantly, you could've sold the bike and invest the $$$ into things that appreciate in value (e.g., your business).
Take this example
For instance, say you sell the bike at the $300 price tag:
- You invest the $300 profits into Profitable Business Product A.
- You know that Profitable Item D gives you an ROE of 25% (the annual return), which gets you $375.
- You profit $75 from the investment for the first year.
So holding onto the needless bike costs you $150 in the first year.
Now, take that $375 you now have from your investment, and increase it by its annual ROE of 25% (as the bike depreciates 25% a year):
- 2nd year: $469 (bike: $169)
- 3rd year: $586 (bike: $126)
- 4th year: $732 (bike: $94)
- 5th year: $915 (bike: $71)
- 6th year: $1144 (bike: $53)
- 7th year: $1430 (bike: $40)
- 8th year: $1788 (bike: $30)
- 9th year: $2235 (bike: $23)
- 10th year: $2793 (bike: $17)
If you had sold the bike ten years ago, you'd be up near $3000 -- which will continue to compound with your profitable investments, instead of holding onto the bike which lowers your equity in the bike to $17.
Here's the crazier thing:
- 11th year: $3491 (bike: $13)
- 12th year: $4364 (bike: $10)
- 13th year: $5455 (bike: $7)
- 14th year: $6818 (bike: $5)
- 15th year: $8523 (bike: $4)
...and it gets crazier every subsequent year as the thing compounds and compounds like Mr. Super-Fattie-In-Cheeto-Factory.
That's just a $300 bike; multiply the effect by X.
You and your bad-self probably have several things worth several thousands/millions/billions that suck out the value of your equity each and every day.
Hoarding onto things that decrease in value destroys your long-term earning potential, and keeps you on the never-ending treadmill of working constantly to maintain a stagnant lifestyle (i.e., wealth = flatlined, even with: you = working).
- List depreciating assets that you don't need.
- Sell them ASAP.
- Invest profits into your most profitable items.
Things that grow.
Posted on October 14
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