Tuesday, March 21, 2017

Don't rent, buy. But only what you can control.

For some items it is good advice, for some items it is not. If you purchase items that grow in value (real estate is good example in the long-term, even if the last few years seem to show us otherwise), it is better to purchase it. After some years you can sell it with profit. Or with loss. Prices can go up or down so remember to purchase them when they are cheap and sell when they are expensive.

You will have to go against average market decisions and the bigger investment you plan to execute, the more time spent analyzing the investment is necessary. There is no general advice whether it is better to buy or rent. You have to calculate it each time you make a purchase decision. With this calculation you delay the purchase and have more time to think whether you really need that item.

We often feel that we simply need that item and our emotions persuade our rationality quite easily. Emotions always win over the rational if you don’t control them. You can purchase small items based on emotions to feel temporarily better, but when there are expensive items at stake, take your time, cool down your emotions and act rationally. If you can direct and control your emotions in  negotiation, you will have unfair advantage over most people, because most of people are guided by emotions.
If you are going to ski for example and you are thinking about purchasing second-hand skis for $100, because you don’t need the brand new ones, think again. How often will you use those skis? Will you even have time to use them? Will they not just stand in your garage and take up your limited garage space?

Compare it to borrowing brand new skis for $5 a day for ten years and your free space in the garage. That would make also $100 over ten years, if you ski only two days a year. But over those ten years you can use remaining $90 to invest and earn more money. If you invest your $100 well and you receive $10 profit every year, you get your ski experience for free.

Profitable borrowing is very usable for items that lose value over time. If item is appreciating its value over time, it is generally better to buy it. O.K. I know we have to buy some doodad from time to time, but let’s control this spending and use it to your advantage.

If you purchase smaller doodad as a reward after earning a lot of money, I fully support your idea. Making money should be rewarded.

Remember: What you should seek when investing, is control. If you can’t control the asset, don’t buy it.

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