A quick lesson in how I failed to understand why a new car would be a liability, and the impact it would have on my cash flow, therefore asset buying capability.
A Liability - Not An Asset
Back in April 2015, My old banger of a car broke down twice within a few weeks. In the year leading up to this, I had started saving some money towards a new car anyway, but once the breakdowns happened, emotions got the better of me.
'I'l go buy a new car, I've worked hard to save up and it will cost me a lot less in repairs', I said to myself. So I went ahead.
Now I had a new car, I thought what an asset it was. It was worth far more than my old one, and was going to be much more reliable - no more repair costs.
Some time after, I picked up 'Rich Dad Poor Dad', By Robert Kiyosaki. The penny dropped.
Rule Number #1 - An asset puts money into your pocket. A liability takes money out of your pocket.
My new car was now my biggest liability. Harsh lesson....learnt.
Impact On Cash Flow
One saving grace was the extra money I thought I would have generally, as I wouldn't be constantly paying for repairs. True. But.....
So my new car was now costing me an extra £244 a month.
Takeaway #1 - A new car, house, or whatever, is not an asset, its a liability because its taking money OUT of your pocket.
Takeaway #2 - The car depreciated significantly when I drove it off the forecourt from the dealership. This must be taken into account.
Takeaway #3 - Instead, buy assets to build up enough passive income to then pay for the new car, therefore it doesn't affect your cash flow.
To download a free sample of 'Rich Dad Poor Dad' By Robert Kiyosaki, click the cover below.