Inspired by Paul Portesi.
One of the most significant accounting problem that has to be solved on a daily basis:
Classify your spendings as assets or expenses
This may seem like a trivial job but it has deep consequences.
Assets are significant spendings that have material value, can be resold, or are helping you to generate income. You own them and/or they can be used for a long period of time (more than a year). Those spendings that do not qualify for assets are expenses.
It is important to state that accounting-assets-classification has nothing to do with profitability (initially). It is generally accepted that you lose money from your assets because they depreciate and get obsolete. So you may have bought the biggest piece of shit in the world. You may have lost half of the money the moment you bought it but it is all worth it because you have bought an asset.
Assets and expenses classification is so important because the first increases your wealth and the former decreases it.
Assets classification is a rich-people-suckers-game where sellers are stuffing them with junk labeled as “assets” or worst “financial assets”. On the other hand, people who buy this crap are labeling themselves as “investors” while the rest of us are just “spenders”, come on. Iam not saying that there are no true assets out there but rather that such assets so rare to find like:
- Your expensive phone bearly classifies as an asset as you will probably use it 2 years max.
- Your leased-car may classify as an asset but most probably not as an investment. What will be left of it after you pay it out?
- Your mortgaged-home may classify as an asset but most probably not as an investment. What will be left of it after you pay it out?
- Your annual car insurance is an expense but your savings-life-insurance is an asset ….hmmm, probably. There is so much financial bullshit out there label as an asset, I can’t even imagine it!
- There are even some expenses of general importance like education and healthcare which we inherently know that benefit us in the long run. That is why these are sold and financed as “assets”
Another important point is that most assets require some sort of maintenance, storage, and care, so that is why their real value can become even negative.
Assets classification is hard. You have to do it on your own terms. Sellers will try to load you with all sorts of crap labeled as “assets”. Do not be a sucker, do the math. If it is too complicated, again do not do it!
On the contrary, there are some instances when an insignificant purchase(or present) can turn out to be a real wealth-enhancer like a flower, a book, a knife, a compass, a shovel …
Assets’ importance and value can only be judged long after their purchase – a posteriori.
Investors are spenders that turned out to be profitable.