The worst "investment" you will ever make

Let's pretend I'm your financial advisor. I invite you into my office, sit you down and show you an investment that is GUARANTEED to lose anywhere from 80 - 90% of its value over the next 10 years. What would you do?

Of course you would storm right out, probably call me some kind of profanity and - if you're smart - get all of your money the hell away from my hands!

However, most people are more than happy to go out every day and spend their hard earned money on items that will do exactly this.

The picture above is a picture of my car. I purchased it in 1998 and paid $25,000 for the pleasure of calling it mine. Today that car is worth maybe $4,000 (but probably less).

Between 1992 and 2002 I purchased 4 computers and spent a total of about $8,000. The end value of each of these machines was somewhere in the range of $50 - $100.

What about CDs and DVDs? If your careful enough to keep them from getting damaged at home, you can maybe get a few bucks for each one (after spending anywhere from $10 - $30 each on them).

It goes right on down the line: clothing, furniture, toys, electronics, art, books, etc., etc. All this crap is worth pennies on the dollar the minute you bring it home. Even things like jewelry, which you think would be different, are only worth a fraction of you pay for them.

There's someone I'd like you to meet:

The depreciation monster eats your wealth and makes you poorer! Your job as a Financial Judo apprentice is to minimize the effect of the depreciation monster.

There are two ways to do this. This first is to recognize that what you are purchasing is going to lose most of its value and minimize the amount of money you will lose. After the 4 expensive, top of the line compters that I wasted all that money on, I have decided from now on I will spend no more than $750 on any computer. Guess what? I found a decent laptop, with more than enough power to run everything that I need it to for under that price point. I also purchased it on New Mexico's tax free weekend, so I didn't have to pay sales tax on it either. Finally, it was purchased as a business expense, so it is 100% tax deductible from our business!

The other option is to LET SOMEONE ELSE TAKE THE DEPRECIATION HIT! Let someone else buy the thing and full price and then take it off their hands for a fraction of the price. This is so easy to do in this day and age, places like ebay and half.com allow you to find great deals on just about anything you can imagine. Whenever we go to a bookstore or a music store, instead of buying something immediately, we go home and see if we can get a significantly better price online. I've found CDs that are retailing for $15 for only a dollar online.

So instead of plunking down $30,000 on a brand new car next year, why not consider looking at slightly used vehicles? You can get something from 1-3 years old with low miles and save yourself $10,000 or more. I just bought a fully loaded 2004 Prius with 25,000 miles on it for only $15,400. If I had bought a 2007 model I would have spent $27,000.

Of course, my plan is to resell this Prius for a profit, but that is a subject of a future post.

So, let's summarize the first three rules of Financial Judo
1. Don't be a debt slave
2. Don't be a wage slave
3. Don't have your wealth eaten by the deflation monster.

Have a Merry Christmas, everyone! I'll be posting again real soon!