“You can live in your car, but you can’t drive your house”

by Luke Davis, Stewardship Capital

​Many years ago, I had a conversation with a coworker that has stuck with me ever since. They had just purchased a brand-new truck that cost nearly twice their annual salary, all while still living with their grandparents. I questioned the wisdom of that choice, and their response was something I’ll never forget: “You can live in your car, but you can’t drive your house.”

I couldn’t argue with the logic, at least as a factual statement, but it struck me as both a shortsighted and unwise viewpoint. I said no more and never offered them financial advice again.

While that may be an extreme example of misplaced priorities, many of us fall into similar traps in our own financial lives. In her landmark book A Framework for Understanding Poverty, Ruby Payne describes what she calls the “hidden rules among classes,” including how people in different economic groups tend to view money. According to Payne, those living in poverty often see money as something to be spent immediately, either to meet urgent needs or to provide joy in the moment. The middle class tends to see money as something to be managed carefully so it doesn’t run out. The wealthy, however, see money as a tool to be grown, and ultimately passed down to future generations.

If I had to guess, most readers of this column probably identify as middle class. And that raises an important question: what are the things we spend money on that actually shrink in value rather than progressing us toward greater wealth?

Vehicles are probably the biggest and most common culprits. AutoNation USA reports that the average new car loses 20–30% of its value in the first year and up to 60% in the first five years. Boats, ATVs, and other motor vehicles follow similar patterns of steep depreciation.

Electronics are another money pit. Smartphones, tablets, and computers can lose 30–50% of their resale value almost instantly when a new model hits the market. Televisions and home electronics often lose more than half their value in just a few years as technology improves, and production costs fall.

Then there’s clothing, another area where our money evaporates quickly. Aside from a few rare, collectible brands, most apparel loses almost all its value the moment you take off the tags. If you doubt that, visit a thrift shop and see the high-end suits and shirts selling for just a few dollars each.

Of course, not all consumer goods are destined to lose value. Some hold their worth surprisingly well. Professional-grade musical instruments like Steinway pianos, Gibson guitars, and Stradivarius violins are examples of purchases that can appreciate over time if properly cared for. Firearms also tend to retain value, particularly those from established makers or that are no longer in production. And as one might expect, high-quality jewelry with rare gemstones or precious metals often appreciate, especially when connected to sought-after brands.

The lesson is simple: while spending money on depreciating items may bring short-term satisfaction, it rarely builds long-term wealth. If our goal is to strengthen our financial footing, and perhaps even leave a legacy to our kids or grandkids, the wiser path is to focus our spending less on the things that lose value the moment we buy it, and more on the assets that grow in worth over time.

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)