We've been getting most of this question from millennials: “Why you should start owning assets early and why does it matter?”. You've just come at the right page in time. Here are valuable investing lessons from a long time investor.
We have all heard the story of the average person working in the standard career, buying a home, having kids, etc. This article will discuss why you should not only start owning assets early but why it is vital to your financial success that you do so.
The following are five key reasons for this claim.
5 Reasons Why Owning Assets Early is Key to Financial Success
1.) Owning assets means you are closer to being financially independent.
If an individual has no assets but does have debt like mortgage or credit card debt, they can be categorized as part of the ‘working poor'. While it is generally accepted that one cannot become truly financially independent without savings by simply saving up enough money to buy an asset for cash, reduces your standard of living through no longer needing income for said asset.
2.) Purchasing an asset for cash reduces risk of loss.
Say you purchase a car on finance; there is always the possibility that your car could be totaled or stolen. If an individual has bought many things like this, they may find themselves with no assets and facing financial difficulty due to having nothing to sell in order to garner money to replace their items. Contrast that with someone who had purchased all their assets with cash, then even if something happens to one of those assets, they can just go out and buy another one.
3.) It forces the individual into being more frugal.
Let us say Joseph goes out and buys a brand new sports car for $500,000, obviously he needs good credit to do this. Now let us say Joseph has no assets but does have debt, he cannot afford the new sports car but he really wants it. He borrows money from loan sharks at high interest rates resulting in him eventually losing his home because of the crippling debt. This is due to the fact that if John had purchased an asset with cash, even if it was a basic form of transportation like a bicycle, he would not be able to afford the luxury vehicle.
4.) Cash purchases typically provide better value for money.
When individuals purchase big ticket items ‘on hire-purchase' they are often shelling out more money than they need to over the long term as well as being charged large fees for doing so. Let us use the example of a computer again: If John purchased a cheap second-hand desktop from a private seller, he would be spending less throughout the lifetime of that computer as opposed to having purchased it on hire-purchase.
5.) It can provide financial freedom later in life.
One day Joseph will retire, what if he had plenty of money saved up to live off? What if Joseph's home is paid for and provides him with an income as well as being his own legacy? Contrast this with someone who has no assets and must rely on their state pension which could easily be discontinued at some point should the country/state run into financial difficulties or people start living longer. The ending result could see the individual forced onto the street.
Now it is not to be thought that everyone should go out and buy assets for cash with their first pay-cheque. They could lose money if they make poor choices or simply cannot afford certain things. However, most people can benefit from owning an asset such as a car (perhaps the only exception being those who live in cities and use public transport). Even just something as simple as purchasing a merch product to add to your collection would constitute with owning an asset.
So, the five reasons listed above demonstrate why you should start own assets early and why it will help you in achieving financial success later in life. It does not matter where you are now but where you want to be financially, so do not let yourself believe that you cannot afford to purchase an asset out right.
Reasons Why You Should Start Owning Assets Early
It's better late than never in investing as how the famous saying goes. So starting your journey into reaping the benefits of asset ownership early in life is much more beneficial to you both financially and emotionally.
Here are some reasons why you should start owning assets as early as possible:
- Experience Matters
When people are younger, they tend to have a smaller monthly budget which means buying an expensive house or car isn't really practical. However, this doesn't mean that you are limited solely to small goals. For example, investing in small real estate projects or simply buying assets which appreciate overtime while having them rented out at similar rates. This way your money will grow faster while also gaining valuable experience related to managing people, property, tenants etc. Experience is the best teacher, it's every bit as true. And since you're not really fully responsible for a house or car you don't have to worry about making mistakes that can cost you big bucks.
2. The Golden Window of Opportunities
One of the most important things when it comes to investing in real estate are opportunities. You are looking for smart investments at good prices which will appreciate over time so there are no reasons why you shouldn't start owning assets as early as possible. This way you'll be able to buy more expensive properties since your income will likely increase overtime. Moreover, with less expenses and higher salaries, perfect tenants will come running towards your door asking if they can rent out your property! However, keep in mind that there are no guarantees when it comes to real estate so the earlier you get in, the bigger chance you have of being able to buy properties at a cheaper price.
3. You'll Lose Your Inhibitions Over Time
When you start renting out your first apartment, for instance, there's going to be a lot of hesitation before signing the final papers. After all, this is an investment and if anything goes wrong with it then you're going down with all of the rest. However, as time goes by and your portfolio grows larger you will hopefully become more confident about what you do and stop taking every decision so seriously since they won't really matter in the long term anyways. In addition, when owning several assets and having a lot of experience and knowledge under your belt, you will be able to make smarter decisions and show more confidence towards your tenants.
4. You'll Need Fewer Assets to Retire
A massive benefit of owning assets is that once you reach the retirement age (depending on the country), the state will provide you with some sort of financial support like pensions. However, there is usually a minimum amount tied to this which means you need to own enough stuff in order for it to pay off. Therefore, if you start investing early enough then most likely by the time you reach this age and want to withdraw from your portfolio, it's going to be big enough and provide at least a decent stream of income for you to live a comfortable life.
5. Experience in Dealing with People and Problems
Owning a lot of assets eventually means dealing with a lot of people. From the neighbors complaining about the noise, to problems that need solving with your tenants, experience is key in learning how to deal with these issues effectively and efficiently. And when this happens over several years then it becomes second nature since they will become more common place which means you'll know how to handle them better next time around. In addition, having several investments means more opportunities where problems might arise and thus your experiences will also be used on multiple occasions.
6. Larger Opportunities for Tax Deductions/Benefits
The more money you make the more taxes you're going to have to pay. However, if you own several assets then there are many tax deductions/benefits that can be taken advantage off.
For example, having a lot of properties will mean being able to write off certain costs such as maintenance, repairs etc. against your taxable income which can help reduce it. Keep in mind though that tax laws differ depending on where you live so take some time to learn about them before taking any drastic measures.
7. The Option of Leverage
Leverage means gaining access via borrowing capital from someone else. It's basically using credit as a way for investing and increasing one's return on investment (ROI). If used correctly, a lot of money can be made with this technique but it's also very easy to go wrong and lose everything.
However, using leverage is one of the smartest ways to get into real estate especially if you're too young to have saved up enough money for a down payment. In fact, some people even consider leveraging your first deal as “paying yourself” which means that from then on you won't need any more capital/funding since you already got your own cash working for you.
8. More Freedom
Owning assets will give you more freedom since there are no bosses or quotas telling you what hours to work at or how many products/services must be sold in order for an employee to stay employed. This means more time to spend with family, friends etc. since you won't have to worry about work-related matters anymore.
Of course, this is highly subjective so there are some people who actually prefer having a long-term job instead of taking care of all their businesses on their own which can be very exhausting and stressful at times.
9. No More Excuses
Do you often tell yourself that your job prevents you from investing in real estate? Then being the owner of several properties will solve that problem by giving you the financial freedom needed to do it no matter how big or small your salary is.
In fact, not only will owning multiple assets give you the chance to put money aside but also allowing enough time for it to grow. And if you're too busy with work then perhaps it's better to let go of that job since having multiple, successful investments will provide you with many opportunities to make more money without actually working.
10. Power and Influence
There are times where simply owning a lot of assets makes people bend over backwards for you. This is because the rich have more power and influence than what is normally assumed or believed especially when talking about deals. For instance, people will do anything for them in order to form a business relationship since most probably they would want to buy/sell with someone who is capable of providing them with great returns on their profits due to how much liquid capital they have lying around.
However, just keep in mind that this power and influence is very easily lost so don't abuse it or you might end up with people hating your guts.
People who have just started investing in real estate will most likely be dealing with single family homes only but if one manages to achieve success then their next investment would surely be a multifamily residence or even better, an apartment building/complex (if they want to increase their income) since they can potentially make much more money.
However, this all depends on the market where the person lives at since if there are abundant opportunities for smaller investments, then it may not be worth spending too much time looking into larger prospects.
12. One of the Few Investments that Actually Produces Cash Flow
This is another one of those benefits that will surely appeal to a lot of people. With the low-interest rates prevalent these days, it's no wonder why so many people are looking into alternative investments such as owning assets because they actually give you money without having to wait for months even years before getting it back! And real estate is one of those few options where you can own and sell at your own terms since there is no time limit on when the transaction must be made unlike stocks and other types of investments that force people into making decisions within seconds or minutes.
13. Tax Benefits
If we take the previous point into consideration (i.e., “One of the Few Investments that Actually Produces Cash Flow”) then it's easy to understand why so many people are jumping the real estate bandwagon without even realizing it! This is because when you buy a property, not only do they serve as an investment but you can also deduct the mortgage interest from your taxes which means you get to save more money! However, using this deduction can potentially backfire in some cases since there are certain limitations and rules which need to be followed.
14. There Is No Better Option for Those Who Want Financial Freedom
And finally, we have come to my favorite reason on why you should invest in real estate early or at least start looking into that option. This is because once someone gains financial independence they truly feel like their problems (or lack thereof) are gone since they are now the master of their own lives. They are able to do whatever they want without having to worry about being unable to pay for something or even dying because they have no insurance. And this is why owning assets is truly important which means you should seriously consider making it a priority in your life!
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About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.