KLE 33: The ONLY Reason For Money

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  • June 24, 2010

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You’ll see as you work your way through these $7 Million 7 Years Wealth System Modules that we have no bans on spending. This is because there is no other reason for money other than for spending! Or, giving away, if you prefer …

Instead, what we are creating is a balance between spending to enjoy our lives now and saving (better yet, investing) to support our future life, including creating the ability to stop NEEDING to work and living our Life’s Purpose.

So it is with the 5% Rule (KLE32) …

It may seem that we are putting a lid on your spending because the chances are that you’re already close to – more likely well over – having 5% of your Net Worth in your Cars and other Personal Possessions!

But …

… possessions generally depreciate!

The Current Market Value of Your Possessions will usually go down over time (true collectibles aside!). To find out their CURRENT VALUE (not what you paid for them, but what they are worth now) use online resources like eBay and Craig’s List to see what similar items are selling for. You should do this exercise once a year.

You can actually use this interesting financial anomaly to buy more stuff!

All you need to do is:

i) Make sure that you have saved up enough cash (over and above your Pay Yourself Twice savings targets) to buy whatever it is that you want to buy, and

You should promise yourself RIGHT NOW that you will NEVER borrow money to buy depreciating ‘stuff’ again!

ii) Revalue your Collectibles; you will most likely find that they have lost so much value since you bought them that they now total less than 5% of your Current Net Worth

If you can check BOTH of the above boxes, go ahead and buy it …

… provided that what you buy doesn’t take you back over the 5% Rule limit!

If you increase your Investment Net Worth (i.e. the minimum of 75% of your Notional Net Worth that you keep in income-producing INVESTMENTS) – as you should, by an average of 8% compound a year, or better – you will similarly be able to increase the total dollar value of the 5% of the remainder that is in your Collectibles, to match!
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June 24th, 2010
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Comment Number:
1
Written by:
jimbomahoney
Posted on:
June 25, 2010 at 12:50 am

Hi Adrian,

Heh, that’s an interesting concept – to sum the “stuff” once per year and use the depreciated value to justify buying more “stuff”!

Comment Number:
2
Written by:
AJC
Posted on:
June 25, 2010 at 6:41 am

It’s only fair; everybody (including me) tells you not to buy ‘stuff’ on finance because it depreciates … so, why shouldn’t we use that to our advantage and buy more stuff (with cash, of course)?

Comment Number:
3
Written by:
Neil
Posted on:
August 29, 2010 at 12:17 pm

“You should promise yourself RIGHT NOW that you will NEVER borrow money to buy depreciating ‘stuff’ again!”

I was prepared to do that for my car, but the rate was below the post-tax return I could get in a CD. Then again, maybe that isn’t really borrowing. We have the cash to pay it off at moment’s notice.