By: TK Irons
Is my car really that bad of an investment?
Before coming back to our discussion on invisible money – a quick note on our beloved cars. We can call this 1.5 of the 3 part series. The answer to the question above is – Yep! Pretty much! Many of us fall in love with our cars like they are people, and they DO NOT love us back. The truth is that they are a group of delicate plastic and metal parts that wear out and destroy your financial progress.
Also, some of us get seduced by envy or marketing and begin to think of our cars as status symbols. We are subtly told to think of them as extensions of ourselves displaying (similar to fashion or the latest iteration of water bottle or travel coffee mug) our “success.” This is a dangerous trap to fall into if you’re wanting to build your balance sheet. Aside from trying to outdo friends and family on housing – it’s difficult to think of a worse way to accomplish this goal.
I really don’t believe there’s anything wrong with having pride in your appearance. Cars just waste too much dough in the process. Buy a nice watch, shine your shoes, work hard on an enviable physique, but don’t use your vehicle as a status symbol. It’s just not worth it. At the end of the day, it’s just a car and it will soon be in a junkyard being scrapped for its parts or metal.
In Warren Buffett’s biography, The Snowball, it describes what he calls an inner scorecard. To know if you have an inner scorecard or an outer scorecard – you need to pose to yourself one simple question: Would you rather have everyone in the room think you are the richest person, but actually be the poorest (outer) OR would you rather actually be the richest, but everyone thinks you are the poorest (inner)? Buffett is a personal hero of mine, and widely considered the greatest investor to ever live. He learned early in his life, from his father, to develop and be guided by an inner scorecard.
Ray Dalio, in his book Principles, describes a similar concept, but calls it first order consequences versus second order consequences. An example from his book looks at exercise. The first order consequences are it’s uncomfortable, sweaty, painful, etc. If you prioritize these things you are unlikely to ever do strenuous exercise. The second order consequences are what we need to focus on – feeling good, strong, flexible, energized, etc.
It can take some time to adjust your mindset on this, but try to think of your car for its use value instead of letting the marketers convince you it is a fashion piece.
PART II – CAR DEPRECIATION
- Invisible money can be affected by the decisions we make
- While it may seem less important or difficult to quantify – it is as real as cash in your wallet