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One thing I love about Millennials and Zoomers is how freely we share advice.

Case in point, there are now countless wealth coaches and personal finance gurus on TikTok recording their best tips on saving, investing, and achieving financial freedom faster.

And we’re hungry for their advice. According to CNN, the hashtag “#personalfinance” alone has a total of four billion views, with “#financialliteracy” and “#financetiktok” not far behind.

However, while the intent is always sound, the tips themselves aren’t. There are some misguided and potentially devastating personal finance myths being perpetuated on TikTok these days, so I am here to address them head-on.

Let’s debunk seven of the most common TikTok money myths before you make a potentially dangerous financial move.

What’s Ahead:

1. “You can (and should) get rich quick”

Debunked: 7 TikTok Money Myths - "You can (and should) get rich quick"

The implication

“Get rich quickly and easily by following my personal finance advice.”

Here’s how to instantly spot a personal finance influencer who abides by a “get rich quick” philosophy: just look for the lime green Lamborghini in the background.

Once they’ve given you a few seconds to lust after their six-figure Italian whip, they’ll start telling you how they “turned $5,000 into $723,000” by following “three simple rules of investing” or some such promise. Sounds appealing.

The reality

Multiplying money on that scale, in that little time, always involves a staggering amount of risk, luck, or both. This is assuming, of course, that the influencer is even being 100% truthful – and that background Lambo isn’t a rental.

It’s entirely possible that this person really has gotten extremely lucky on some clandestine investing opportunity, but lottery winners aren’t financial advisors.

Actual financial advisors, and their very rich clients, will give you this advice: 

“Get rich slowly.”

If you wouldn’t spend your life savings on lottery tickets, you shouldn’t get your financial advice from TikTok influencers who got lucky, either. The key is to get rich without the risk, and here’s exactly how to do it, step-by-step.

2. “Day trading is easier than you think”

The implication

Historically, only the rich and well-connected could make money on the stock market. But now that we have apps like Robinhood and Webull, everyday investors like you and me can buy, sell, and trade stocks ourselves, getting rich in the process just like day traders on Wall Street.

The reality

97% of day traders lose money.

That’s according to a large-scale study of day traders, where the researchers concluded:

“We show that it is virtually impossible for individuals to day trade for a living, contrary to what course providers claim.”

By contrast, “only” 70% or so of gamblers in Vegas lose money, according to the Wall Street Journal. So your money is safer on the roulette table than taking a TikTokers’ investing advice (but still, don’t gamble).

3. “Rich people look rich”

Debunked: 7 TikTok Money Myths - "Rich people look rich"

The implication

Earn big, spend big. As your income level rises and you start to feel “rich,” it’s time to start acting like it. Get a luxury apartment, lease a Mercedes, and don’t hesitate to buy that $2,000 purse.

Besides, what’s the point of working hard if you’re not playing hard?

This one is definitely more of an implication than a direct piece of advice. I don’t know of any TikTokers who are outright saying “spend all of your money” – but there are certainly plenty who are leading by example.

The reality

Rich people become rich precisely because they don’t spend money – they invest it. There’s a saying by famous-yet-frugal YouTuber Scotty Kilmer that I think about all the time:

“Broke people buy BMWs, and rich people buy Toyotas.”

Rich (or soon-to-be-rich) people know that if they buy a Toyota instead of a BMW at age 30, and invest the $30,000 difference at 10% APY, they’ll have:

  • $77,812 when they’re 40.
  • $201,825 when they’re 50.
  • $843,073 when they retire at 65.

The point of this anecdote isn’t to throw shade at Bimmer, but rather, to highlight how rich people think differently before making a purchase. They don’t think:

“How much can I afford?”

But rather:

“How much can I save and invest?”

In short, rich people don’t lead extravagant lifestyles – they lead frugal, yet comfortable lifestyles now so they can live however they want later.

4. “Live on a shoestring budget”

The implication

On the complete other side of the spectrum, there are TikTokers who advocate a shoestring lifestyle, where rigorous budgeting and extremely limited pleasure spending are the only viable pathways to financial freedom.

The reality

It’s totally OK to buy nice things and treat yourself.

In the previous example, yes, a BMW costs $30,000 more than a Toyota – and if you invest that money instead of buying a fancier car, you’ll have a fortune waiting for you by retirement.

That being said, if the BMW brings you joy and makes you happy (and you can afford it), buy it.

The key to achieving financial mindfulness isn’t to spend less – it’s to spend more mindfully on the things that truly matter to you. There are influencers out there who say you should stop going out to eat cold turkey because a restaurant meal for two can easily exceed $60 or even $100.

But financial mindfulness says that if that meal helps you build a relationship with someone, it’s worth it.

Draconian saving can be just as misguided as wanton spending. The key, then, is to determine how much you can safely spend each month, and then to spend that money on the people and things that bring you the most joy.

5. “Cryptocurrency will make you rich”

Debunked: 7 TikTok Money Myths - "Cryptocurrency will make you rich"

The implication

This one’s pretty straightforward, and I have heard it straight from countless TikTokers’ mouths: crypto will make you rich.

Forget the corrupt, manipulated stock market – Bitcoin, Ethereum, and Dogecoin will bring prosperity and financial salvation to Millennials and Zoomers.

I mean, what other investment vehicle has provided anything even close to the 750,000,000% ROI that Bitcoin has since 2011?

I got rich off crypto and you will, too – hop aboard before it’s too late.

The reality

Cryptocurrency is like a fast-moving, rickety roller coaster at the county fair. The foundation hasn’t completely crumbled, but the wooden boards and screws holding it up are falling off with each passing car.

Hop aboard the crypto train at your own peril.

It’s true that Bitcoin has had a miracle run since 2011, rising from $0.008 to a peak of around $65,000 in April 2021 and making a lot of people very, very rich. But even diehard crypto fans have acknowledged that a “Bitcoin winter” is coming – that is, if it hasn’t already.

The Bitcoin winter is just one of the many huge risks to a crypto investment. The others (like China’s clampdown on mining) are fast approaching the roller coaster’s foundation with a sledgehammer.

Can Bitcoin still make you rich? Maybe, but there are plenty of safer rides at the carnival.

6. “Just copy the investments of rich people”

The implication

You can’t copy athletes to win gold medals, nor can you copy New York Times Best Sellers to sell more books.

However, you can totally copy the investing strategy of rich people to get rich.

In fact, they want you to copy them – either because your investment makes their investment more valuable, or simply out of the goodness of their heart. Warren Buffet famously shares his trades with the public so they can borrow and benefit from his wisdom.

So why spend 14 hours a day researching good trades when you can just copy someone else’s homework – especially when they ask you to?

The reality

Rich people can afford to make extremely risky investments and lose money that you and I can’t afford. For that reason, they shouldn’t always be followed into battle.

Warren Buffet is also famous for admitting when he’s made a mistake. In 2014, he confessed that he’d held onto shares of Tesco for way too long, costing him and his investors $444 million. Berkshire Hathaway’s investors may have been able to shrug off the loss, but any outsiders emulating Buffet’s moves may have been screwed.

Copying the investments of rich people may be a viable strategy if their investments fit within your financial goals and risk tolerance. For help determining whether that’s the case, you want to talk to a wealth advisor.

7. “You don’t need a wealth advisor”

Debunked: 7 TikTok Money Myths - "You don't need a wealth advisor"

The implication

Thanks to zero-commission trading platforms, you no longer need to buy and trade stocks through a sweaty stockbroker in some Manhattan office.

By that same logic, the emergence of robo-advisors and the fountains of free financial advice on TikTok have eliminated the need for old-fashioned wealth advisors. After all, why give someone 2% of your hard-earned gains when it’s never been easier to invest your money yourself?

The reality

The recent trifecta of online brokers, robo-advisors, and personal finance gurus on social media has done wonders empowering Millennials and Zoomers to handle our money better. The TikTok DIYers certainly have one thing right: it’s never been easier to make your own trades.

However, despite birthing a renaissance in financial literacy, nothing on TikTok can replace the tailored, one-on-one advice you’d get from a professional wealth advisor.

Robo-advisors can personalize your investing strategy to an extent, but they can’t play a direct role in helping you navigate the markets and make good decisions. 

Summary

There’s plenty of sound personal finance advice on TikTok, but it only takes one bad tip to cost you money.

For that reason, it literally pays to separate the wheat from the chaff. Not everyone who’s made money is a skilled investor – some are just lucky.

Read more:

Source: moneyunder30.com

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Table of Contents
show

Highlights

  • Trading to get rich is fundamentally different than investing to build wealth
  • Not knowing the difference sets you down “an extraordinarily dangerous path…”

Aswath Damodaran recently appeared on The Long View podcast…

Damodaran is a well-known professor of corporate finance and valuation at the Stern School of Business at NYU. In other words, he studies companies, stocks, and how they’re valued. The investing world greatly respects him.

Morningstar’s podcast hosts ended their episode on a light note by prompting ChatGPT to create a question that would “annoy” Damodaran. ChatGPT asked:

Can you give me a hot stock tip that will make me rich quickly, without any research or understanding of the company’s fundamentals?

Damodaran – a man whose life and career are built on a calculated understanding of investing fundamentals – was amused, but admitted he hears similar questions frequently. He responded to such investors:

They miss the essence of investing. You don’t invest to get rich. You invest to preserve and grow wealth. I think the minute you think of investing as a pathway to getting rich, you set yourself up for all kinds of mistakes. You overreach. You overbet. Because that’s the way you get rich. You gamble.

I think we need to redefine investing. Investing is about preserving and growing wealth, which means if you’re a doctor, go back and do your job. Earn your income. That’s going to be at the heart of your investing. If you’re spending most of your time as a doctor looking through the stock pages trying to pick stocks, your wealth is not growing. Your investing can be great, but it does not pay off.

So I think that it’s much more common than we accept. They’re traders. They’re not investors. They want to trade their way to riches.

And they look at success stories. There’s a selection bias. Now you have YouTube videos of people who got rich in 5 years by trading. And you use those as role models. It’s an extraordinarily dangerous pathway you’re on because history suggests sooner or later you’re going to leave that casino with nothing in your pocket.

In Other Words…

Damodaran’s advice blends perfectly with what we espouse on The Best Interest.

Be an investor. Preserve and grow your wealth. Ignore the noise.

Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

Want to learn more about The Best Interest’s back story? Read here.

If you prefer to listen, check out The Best Interest Podcast.

Source: bestinterest.blog

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Life insurance coverage is an essential financial tool.

The proceeds from these policies can often make the difference between loved ones dealing with long-term financial hardship or being able to move forward with paying off debts or paying their everyday living expenses in the case of the unexpected.

aflac life insurance company reviewWhen considering the best life insurance policy for you, it is important to determine the type and the amount of coverage that you require, as you don’t want those you care about to be underinsured.

An equally important part of the equation is the life insurance carrier from which you purchase your plan. Something to consider as well is whether your prospective insurance company provides key person insurance.

It is often overlooked or not considered when planning for the future, but it can be the difference between a business making it or not upon death or health of any employee whose knowledge, work, or overall contribution is considered uniquely valuable to the company. Take the time and see if it’s something you need to get for your business or firm.

You will want to be sure that the carrier is strong and stable from a financial standpoint. Another key criterion is that the carrier has a good reputation for paying out its claims. One company that meets these factors is Aflac.

The History of Aflac Life Insurance Company

Aflac (American Family Life Insurance Company) began offering insurance coverage to its customers more than 60 years ago. The coverage that this company is considered to be “voluntary” in that the policies can supplement other insurance coverage that an individual may already have.

The founders of Aflac are three brothers – John, Paul, and Bill Amos. In starting this company, the brothers saw a need for financial protection if a medical need occurs. Aflac had its beginning in Columbus, Georgia, and it started with just 16 employees and 60 sales agents.

In just the first year, Aflac had more than 6,400 policyholders and roughly $388,000 in total assets. Over time, the company grew and expanded its list of coverage offerings to its policyholders.

One way that the company grew exponentially was by offering its products to the workplace. Here, large numbers of employees of a company could sign up for protection at one time. As the company grew, it started to offer its products internationally, and in 1974, the products were offered in Japan. Within just one year of this occurrence, Aflac has written roughly $25 million in insurance premiums. During that same year, the company also started trading on the New York Stock Exchange.

The 1980s were a time of substantial growth for Aflac – and in 1982, the company had more than $1 billion in assets. In the decade of the 1990s, the company began its now-famous advertising campaign, which features the Aflac duck.

In the mid-1990s, the company also introduced a SmartApp. This allowed agents to issue insurance business electronically – which sped up the process a great deal and allowed customers to be covered much more quickly as well.

Due in large part to its innovative advertising strategy, 9 out of 10 people recognize the Aflac name and the brand. Ever since its beginning back in 1955, Aflac has put the customer first. It does so primarily by paying out its policyholder claims in a timely and efficient manner.

Today, Aflac – a Fortune 500 company – has more than 50 million policyholders. In addition to just offering protection products, Aflac is also involved in the communities in which it serves. For example, in 2011, the company contributed more than $1 million to the Red Cross for tsunami relief in Japan. And, in 2012, the company was rated as number 69 on Newsweek’s “Green Rankings” of the largest 500 companies. By the year 2013, Aflac had appeared on Fortune magazine’s list of the World’s Most Admired Companies for the 13th time.

The company continues to grow and prosper, due in large part to helping its customers protect against the loss of income and assets, as well as helping them to pay supplemental medical expenses. Aflac has a wide reach in terms of attracting potential customers. Its key distribution channels include individuals at the work site, in retail locations, and in their home. Presently, Aflac is the number one provider of voluntary insurance at the worksite in the U.S.

Aflac’s Insurer Ratings and Better Business Bureau Grade

Aflac has very high life insurance company ratings that are provided by the insurer rating agencies. These ratings are indicative of the company’s overall financial strength, as well as its timely benefit payout to the company’s policyholders. These ratings include the following:

  • A+ from A.M. Best
  • A+ from Standard and Poor’s
  • As3 from Moody’s

In addition, Aflac is also an accredited member of the Better Business Bureau (BBB). It has been a member of the BBB since January 1, 1958. Also, the company has been given a grade of A+ from the Better Business Bureau (on an overall grade scale of A+ to F).  This puts them on par with other top life insurance companies like Transamerica or Banner.

Throughout the past three years, Aflac has closed a total of 497 complaints through the BBB. Of these 497 complaints, 357 had to do with problems with the company’s products or services. Another 96 of these complaints were concerning billing or collections issues, 25 had to do with advertising or sales issues, 11 were about delivery issues, and eight were in regard to guarantee/warranty issues. There are also 20 customer reviews that have been posted on the Better Business Bureau’s website in regard to Aflac.

Life Insurance Products Offered by Aflac

Aflac offers several options for life insurance coverage. These include both term and permanent protection. With term life insurance, a policyholder is covered with death benefit protection only, without any type of cash value or savings build-up. Term life insurance is purchased for a certain period, or “term,” such as ten years, 15 years, 20 years, or even for 30 years, depending on the policy holder’s needs.

Permanent life insurance coverage offers both death benefit protection, as well as cash value, build up. With a permanent life insurance policy, the coverage can last throughout the policy holder’s life, provided that he premiums remain paid.

This type of life insurance protection will also allow tax-deferred growth of the funds that are inside of the cash value component. This means that there are no taxed due on the growth of these funds unless or until they are withdrawn.

A permanent life insurance policyholder may be able to borrow or to withdraw these funds for any reason at all – including the payoff of debt, the supplementing of retirement income, or the assurance that a child or a grandchild will be able to pay for their college expenses.

There are no medical questions to be answered on the Aflac life insurance policies. This means that even those individuals who may have certain health conditions can still qualify for life insurance coverage.

The plans offered by Aflac are also portable. This means that if an individual purchases a plan as a part of his or her employee benefits package if they leave the company, they may still take their life insurance coverage with them.

Aflac also offers juvenile life insurance coverage. With these plans, a child may be protected by providing insurability as an adult, as well as by providing them with a jump-start on the road to financial independence.

The company also offers AD&D coverage (accidental death). With the Aflac accidental death coverage, if the insured passes away due to injuries that are sustained from a covered accident, then an additional amount of proceeds will be paid out to his or her named beneficiary.

On the insurance plans that are offered through employers by Aflac, there is typically no direct cost to the company. Rather, employees can pay for their coverage via direct payment of the premiums through their weekly paychecks.

Aflac offers a life insurance calculator directly on their website. This can help an individual with determining just how much life insurance coverage they may require based on their specific situation.

Other Products Offered

In addition to just life insurance coverage, Aflac offers a wide range of other protection and supplemental products. These include the following:

  • Accident insurance – The accident insurance plan via Aflac offers cash benefits to help provide financial support during the various stages of accident care, as well as recovery. These proceeds may be used by the policyholder to help with paying for emergency treatment, or for treatment-related lodging and transportation.
  • Cancer insurance – The cancer insurance coverage that is offered via Aflac can help to provide a lump sum of proceeds that may be used for a wide variety of needs, such as treatment, living expenses, or uninsured medical procedures.
  • Critical illness insurance – Critical illness insurance protection can help to provide funds for helping with the cost of treatment of a covered illness. Having funds available can provide the peace of mind that may be required for helping an individual to recover.
  • Hospital intensive care insurance – Charges from a hospital stay can often be substantial – and in some cases, these may or may not be covered through a regular health insurance policy. With that in mind, a supplemental hospital insurance plan through Aflac can help. With Aflac, these funds can be made available very quickly, as the company has a one-day payment of claims.
  • Hospital indemnity insurance – With hospital indemnity insurance, policyholders can also be assured that uncovered expenses from their regular health insurance can be fully or partially taken care of.
  • Dental insurance – The dental insurance coverage that is offered through Aflac provides a wide variety of benefits, with no networks, deductibles, or pre-certification requirements to deal with. Just go through your local dentist and have your insurance information with you.
  • Vision insurance – Regular eye exams can do much more than just help with correcting one’s vision. These can also help to point out other health-related issues, such as high blood pressure or cholesterol, diabetes, or even a brain tumor. Having this coverage can be well worth the premium cost.

Also, Aflac also helps its client/employers with setting up benefits, such as through cafeteria plans. COBRA administration is also available through Aflac.

How to Get the Best Quotes on Life Insurance Coverage

When searching for life insurance coverage, it is important to work with an independent company that can help you in finding the very best rates. An independent company or agency will not be associated with just one single insurance carrier, but rather with multiple carriers. Because of this, you will be much better able to compare life insurance policies, benefits, and premium rates – and from there you can determine which of these will be the best for you and your specific needs.

If you are ready to begin the process of finding the best life insurance plan, then we can help you. We work with many of the top-rated life insurance carriers in the marketplace today, and we will assist you with obtaining all of the details that you require for making an informed purchase decision. We can do so for you very quickly, easily, and conveniently – all from your home computer, and without the need to meet in person with a life insurance agent. When you are ready to being, just fill out the quote form on the aide of this page.

We understand that the purchase of life insurance can be somewhat overwhelming. There are a number of variables that you need to be aware of, and you want to be sure that you are choosing the proper type and amount of insurance coverage.

The good news is that today, there are many options that are open to you. We will assist you with finding the one that best fits your specific coverage needs. So, contact us today – we’re here to help.

Source: goodfinancialcents.com

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Investment banking is a specialized area of the financial services industry that focuses on aiding governments, corporations and other entities to raise capital and complete mergers and acquisitions. The term “investment banker” refers to an individual who works for an investment bank that offers these services.

Investment banking is typically considered to be a prestigious career, and becoming an investment banker can be lucrative for those willing to complete the necessary education and training.

What Is an Investment Banker?

Investment bankers work for investment banks, which are effectively middlemen between entities that need capital and entities that provide it. In simpler terms, investment bankers help their clients to expand and grow their businesses or operations.

Another way to think of an investment banker is as a financial advisor to governments, corporations, and other businesses. As part of their professional duties, they may guide clients in making financial decisions that directly or indirectly affect their bottom line.

Investment bankers are most often associated with Wall Street, though they work in cities throughout the world. Some of the largest investment banks in the United States include Goldman Sachs & Co., Morgan Stanley, J.P. Morgan, Bank of America Merrill Lynch, and Blackstone.

What Do Investment Bankers Do?

Investment bankers play an important role in helping companies achieve their financial goals. When a corporation is planning an upcoming expansion project, for instance, its board may turn to an investment bank for help. An investment banker can analyze the company’s financial situation to determine the best way to meet its needs.

In terms of the specific tasks an investment banker may carry out, that depends largely on the type of clients they work with.

Assisting With Initial Public Offerings

Investment bankers can play a critical role in helping clients secure capital. Depending on the client, this can be done through a variety of means, including the launch of an initial public offering (IPO).

An initial public offering, or IPO, allows private companies to offer shares of its stock to the public for the first time. The investment banker assists by creating a prospectus explaining the details of the IPO, marketing it to potential investors, and navigating Securities and Exchange Commission (SEC) compliance rules.

Investment bankers are key to whether the company’s IPO is a success. They help determine the initial price of the offering, which is critical. Pricing too high could scare off investors, while going too low could undercut their client’s profits.

IPO investing at your fingertips.

Don’t miss your chance – get in at the IPO price.

Bond Issuance

Government agencies and corporations often use bonds as a fundraising tool. For example, if a city government needs money to improve local roads they might issue a municipal bond to fund the project. Investors purchase the bonds on the bond market, giving the government the capital it needs to complete the road updates. Investors can hold onto the bond and earn interest on it, or they can sell it to another investor.

As with an IPO, an investment banker’s role in issuing bonds may include preparing the bond issuance documents, setting a price, submitting it to the SEC for approval, and marketing the bond to investors to raise capital.

Recommended: Federal Reserve Interest Rates, Explained

Equity and Debt Financing

Equity and debt financing are two other ways that companies can tap into funding. With equity financing, companies raise capital by selling an ownership share in the business. Venture capital and private equity are common examples of equity financing.

Debt financing involves taking out loans or lines of credit, without giving up ownership stakes. An investment banker can help companies assess which type of financing makes more sense for their business model, and help them work through the process of securing the funding.

For example, investment bankers may work with startups to pitch angel investors, while they might help more established companies compare and select loan options.

Mergers and Acquisitions

Another common task that investment bankers assist companies with is mergers and acquisitions. In a merger, two companies enter into an agreement to become a single business entity. Each company is treated as an equal in the transaction. An acquisition, on the other hand, involves one company purchasing another.

In either type of arrangement, companies may use investment bankers to oversee the process. This could involve negotiating the terms of a merger or acquisition and reporting the details of the transaction to the SEC to ensure compliance. When a company considers an acquisition, investment bankers can also help identify and vet potential targets.

Recommended: What Happens to a Stock During a Merger?

Investing and Asset Management

While investment bankers’ duties primarily revolve around raising capital for their clients, there are other services they may perform. This can include things like:

•   Investment research and analysis

•   Buying and selling securities

•   Offering advisory services

•   Asset management

These services are similar to what a personal financial advisor might offer their clients.

How to Become an Investment Banker

If you’re interested in a career in investment banking, there are a few things to know. In terms of education, a bachelor’s degree is typically a minimum requirement for most investment banker jobs. Though some investment banks may look for candidates that have earned a higher degree of education, such as an MBA or a graduate-level degree in finance.

Aside from education, there are certain skills that may help you be successful as an investment banker. Those include:

•   Ability to perform under pressure

•   Good communication skills

•   Solid marketing skills

•   Firm grasp of financial markets and modeling

•   Strong attention to detail

Depending on your responsibilities, you may also need a securities license. That may include completing one of more of the following licensing exams:

•   Series 7 General Securities Representative Qualification Examination (GS)

•   Series 79 Investment Banking Representatives Exam

•   Series 63 Uniform Securities Agent State Law Exam

Before you can take these exams, you first have to be employed and sponsored by a FINRA-member firm or other self-regulatory organization member.

Taking and passing the Securities Industries Essentials (SIE) Exam could help improve your chances of being hired as an intern or junior employee. That process begins early, with many banks hiring summer interns more than a year ahead of the start of the program.

How Much Do Investment Bankers Make?

Investment bankers generally earn above-average salaries. Even at the entry level, it’s possible to make $100,000 or more, and salaries for top Wall Street bankers can easily range into the millions or tens of millions. But investment banking is one of the hardest jobs on Wall Street. So, if you’re not prepared to routinely work 100-hour weeks or constantly be on-call for your clients, it may not be the job for you.

The Takeaway

Investment bankers work primarily with institutional investors, governments and corporations rather than individual investors. But you can still benefit from the work investment bankers do behind the scenes indirectly.

Investment bankers may work in a variety of roles, such as helping facilitate IPOs, or mergers and acquisitions. It can be a lucrative career path, too, but generally requires a graduate-level education, and additional licensing.

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The question of whether a car is an asset or a liability has been debated for decades.

The reason for the debate is that there are many types of cars in the world and each car serves different purposes.

In the past, many people bought cars that were used and old to save money, because they believed it was cheaper in the long run than purchasing new ones every few years. This mindset shifted after some studies showed that replacing your car more often actually costs you less over time in terms of maintenance cost and depreciation on your vehicle value when compared to keeping a newer model longer.

Nowadays, most consumers are aware that the car is an asset and are more willing to pay for a new one.

However, there is a huge caveat on how you purchase the car, the age of the car, and the purposes of the vehicle.

All in all, depreciation can eat into your car’s worth.

What’s your take on this debate?

Is a car an asset or liability? Answer this question by looking at the purpose of the vehicle, its value and how much it will cost to repair if damaged.

What is Considered an Asset?

The definition of an asset is broad and includes most things that have value. Assets are tangible or intangible property such as land, buildings, equipment, intellectual property such as patents and trademarks, or stocks.

This can be anything from a physical asset such as a house or equipment, to a more intangible asset such as a strong brand name or a loyal customer base.

Is a car an asset or liability?

Picture of a couple looking at a car discussing is a car an asset or liability.

A car is an asset to its owner because it took money to buy the vehicle. It is also a liability in that the cost of maintaining the car can be high, and depreciation on a new vehicle can eat into a person’s savings.

There is no definitive answer as to whether a car is an asset or a liability. It depends on the specific situation and the person’s circumstances.

For example, if someone needs a car to get to work, then the car would be considered an asset. However, if someone only uses their car for recreational activities, then the car would be viewed as a liability.

On the whole, cars are considered liabilities. They require regular maintenance, insurance, and other associated costs. However, there are a few exceptions. For instance, in some cases, a car can be used as collateral for a loan or as an investment vehicle.

Is a Car a Depreciating Asset?

Picture of a key with cash for is a car a depreciating asset.

A car is a depreciating asset because its value decreases over time. The depreciation of a car is based on a number of factors such as the age of the car, the make and model of the car, the condition of the car, and the miles on the car.

Cars are assets, but not smart investments as they will depreciate over time.

Reason # 1 – Wear and tear

Cars require a great deal of care and maintenance in order to keep them running smoothly. This includes everything from regular oil changes and tune-ups, to replacing worn-out parts and fixing dents and scratches.

In addition, cars depreciate in value over time due to normal wear and tear.

Reason # 2- Higher Mileage

The value of a mile decreases the more it is used. This is because the value of something depends on its rarity and when something becomes common, its value decreases.

The average car is only good for 200,000 miles. This is because of both the increased mileage and the cost of repairs as a car gets older.

Reason # 3- Cars become obsolete

Cars are becoming obsolete because new models and makes are constantly being released. This means that people want the newest and latest model, so they trade in their old car for a newer one.

Plus many of the parts for older cars become harder and harder to find. Thus, causing the cost to repair to escalate.

Reason # 4- Cars are not investments

Some people may argue if a house is an investment as well.

When you think of an investment, you want a certain rate of return on your money.

Most people use the stock market as a benchmark of earning 8% of the initial outlay of money. Thus, a car is an investment that depreciates over time. It will lose value as it gets older and the parts wear out.

If you want a return on your money, you should be asking is now a good time to buy stocks?

Can a Car Appreciate?

Yes, vintage cars and luxury sports cars have always been the exception. There are select vehicles that are in pristine condition with little to no mileage. These collector cars have a special fan base willing to spend money on these appreciating collections.

However, for the average car, the answer has always been a resounding NO!

Well, that was up until 2020, when used vehicles started to increase in value due to lack of microchips availability has been scarce causing the production of new cars to be halted. Thus, the supply and demand for new cars have been skewed causing an increase in car worth.

As the supply chain gets back to normal production, this appreciation in our sedans, trucks, and SUVs will be short-lived.

How To Calculate Car Value

Picture of a car driving on a highway to figure how to calculate car value.

Car value is the estimated worth of a car. There are two main methods for calculating this:

  1. The trade-in method, which takes your vehicle’s current market value and divides it by its estimated remaining life span.
  2. The resale method takes your vehicle’s current market price and then subtracts the depreciation rate from that value to get a car’s market value.

To calculate the value of a car, you need to know its make, model, year, and condition.

Personally, I like finding the worth of a car based on its Kelley Blue Book (KBB) value. This is the resource my dad used when he worked in the car industry, so I can trust the information.

The KBB value is updated monthly and takes into account recent sales and modifications.

When it comes time to buy, sell, or trade-in your car, you’ll need to know a fair price.

You can use a variety of methods to calculate your car’s worth, including using online tools, checking with dealerships and other buyers in your area, and looking at recent sales data. Remember to factor in your car’s condition and mileage when calculating its worth–prices will vary depending on the location and condition of your car.

Car Value Deprecation Curve

Picture of a car driving on a path for the car value depreciate curve.

Before you head out and purchase your car, car value depreciation is a real consideration in your decision.

As KBB states, the first year of owning a brand new car will depreciate the most. While it feels great to drive off the lot in a brand new SUV, you can watch hundred dollar bills float behind you with how quickly the car depreciates.

To calculate the depreciation of a car, it varies depending on the make and model.

However, here is a car value depreciation chart to estimate based on.

  • In year one, most models will depreciate at least 20% or more.
  • From years 2-4, the car depreciates about 10% each year.
  • After five years, a car will depreciate about 60% of the original purchase price.

Car Value Deprecation Curve Example

For example, let’s take the average price of a new car of $47,077 according to Car and Driver.

  • 1st year = car lost $9415.40 in value and is now worth $37,661.
  • 2nd year = car lost another $3,766 in value and is now worth $33,895.
  • 3rd year = car lost another $3,389 in value and is now worth $30,505.
  • 4th year = car lost another $3,050 in value and is now worth $27,464.
  • After 5th year, the car has lost an estimated $28,246 in value and is now worth about $18,830

That is the reason most people do not believe a car is an asset.

That is a depreciating asset. Would you consider an investment if you knew 60% would be wiped away in less than five years? Probably not.

This is why most thrifty people look for cars that are at least 5 years old and lost most of the depreciation. Personally, I have never purchased a new car; everything I owned was new-to-me used vehicle. Even growing up as a daughter of a car salesman and manager, my parents never purchased a brand new car due to deprecation.

Another reason beater cars are super popular!

How Your Car Is An Asset

Picture of someone driving to show how your car is an asset.

There are a variety of ways to define what an asset is, and whether or not a car falls into that category depends on the definition used.

In general, most people would say that a car is an asset because it has value and can be sold for money.

However, there are other definitions of assets that may not include cars. For example, some people might say that an asset is something that generates income or increases in price.

A car can be an asset for someone who is making money off of it. For instance, an Uber driver uses his or her car as a business asset. The car is providing them with income, and thus it can be considered an asset.

On the other hand, most people use their vehicles for personal use as a mode of transportation and do not make money off of it. If your car was purchased with cash or paid off, then you can consider it an asset.

Is a paid off car an asset? Yes.

Why is a car not an asset?

Picture of an older car as to why is a car not an asset.

A car is not an asset because it depreciates in value the moment you drive it off the dealership lot. While it may be a necessary expense, it is not an asset that increases in worth over time.

Is a leased car an asset?

No, a leased car is not an asset because the asset (car in this case) is the asset of the leasing company. This is 100% liability for you and a monthly payment which you must make.

Leasing a vehicle allows you to drive it for the length of your lease term without the risk of buying and then selling or trading in at the end of your lease. Once the lease expires and if you decide to purchase the car, then it would be considered an asset on your net worth.

How Your Car Is Considered A Liability

Picture of someone handing over cash with a car in the background for how your car is considered a liability.

The car is considered a liability if the debt exceeds the car’s value.

Simply put… If you have an auto loan, your car would be considered a liability.

Given that most people believe car loans are a part of being an adult, many view cars as a liability and monthly payments normal.

In addition, a car is a liability because, like any other depreciating asset, it will lose its value over time.

The longer you own it, the more money you will likely have to spend on repairs and general upkeep. This means that your car is not only costing you money every month in terms of payments and insurance, but also in terms of the decreasing worth of the asset itself.

Is a car loan an asset?

A car loan is a type of debt that is incurred when borrowing money to buy a new or used car. Thus, the car loans are considered liabilities and the car itself would be considered collateral.

Should I Include My Car in My Net Worth Calculation?

The answer to this question depends on how much your car is worth.

Personally, at Money Bliss, we recommend counting the vehicle as an asset and any auto loan as a liability. That means you would include both in your net worth calculations.

The reason why to include in net worth is if you had to sell your car immediately, you would be in one of two situations:

  1. You have instant access to cash if needed.
  2. You owe more in your car loan and thus, have negative equity. Meaning you would have to pay additional money to get out of your car loan and sell your car.

To keep your net worth accurate, you should adjust the price of your vehicles as they decrease over time.

Is Having a Car the worst investment of your Money?

There are a lot of factors to consider when answering this question.

Owning a car can be a major expense, and there are a lot of costs that come with owning a car, such as insurance, registration, and maintenance. However, a car can also provide a lot of benefits, such as convenience, freedom, and security.

Ultimately, it depends on your individual circumstances.

Know someone else that needs this, too? Then, please share!!

Source: moneybliss.org

Apache is functioning normally

Bonds began the day in weaker territory but quickly found their footing after softer PMI data.  In particular, ISM Services (50.3 vs 52.2) helped 10yr yields move from being a few bps higher to a few bps lower.  From here, the week shifts to placeholder mode ahead of next week’s CPI and Fed announcement.  The “skip” is still the baseline for this meeting.  Instead, markets have been trading the length of time spent at the ceiling.

None of the recent data has had a huge impact on rate hike odds at the coming meeting.  But if we add Fed Funds Futures for the January 2024 contract (used to trade the December meeting), we can see a fairly quick jump from 4.0 to 5.0% over the past few weeks.  This mean the market had seen the Fed cutting rates several times by the end of the year, but now sees the ceiling remaining intact.

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Source: mortgagenewsdaily.com