4 Questions Before Buying Assets
September 05, 2009 by Paul Walsh | Category: Investing
Assets are better than debt – this goes without saying. Everybody wants to increase the number and value of assets in their portfolio. Even though you may be in a hurry to do so, keep one thing in mind: timing new acquisitions can be tricky. If you are not careful you may buy something and begin to experience regret sooner rather than later.
Here are four questions to ask yourself if you are trying to time new acquisitions while managing your current assets:
- How much do I still owe? You can have an asset, such as a home, but not own it outright. For example, you may have taken out a $200k mortgage to purchase your home. While this is debt, if you only owe $5k, for example, and your home is worth $200k, you have an asset of $195k on your hands. It is important to know how much your assets are worth, as well as what type of debt you are still dealing with.
- Is it really an asset? Some people think that have assets but are actually mistaken. For example, you owe $15k on a car that is only worth $10k. This is a bad spot to be in, and is definitely not an asset to you. In fact, if you were to sell the car right now you would lose $5k. As long as you realize you are in this position you are at least ready and willing to do something about it.
- Will my budget allow me to make a big purchase? Timing new acquisitions is all about one word: budget. You need to look at your current budget and see just how much money you have available. If you don’t have much wiggle room between your income and expenses, you may want to forget about your purchase for the time being. Only you know if the money is there – be a smart consumer.
- Timing a new acquisition, such as a house, has a lot to do with money. As noted above, your budget will more or less tell you if you can afford the property. But remember this as well: you need to consider what else is going on in your life. You may be able to afford that new home right now, but if you are planning for children in the very near future this may not be the best idea. When deciding whether or not to make a purchase you need to look at your current budget, as well as what may happen down the road. You are not a fortune teller, but there may be something you are planning for that will cost a tidy sum.
You may be very good at managing your assets and deciding when to make purchases. But if you aren’t, ask yourself the four questions above. They will help you to see where you stand with your assets, as well as what the future holds for new acquisitions.
