Take on debt to buy assets, not toys

Take on debt to buy assets, not toys

Written by Caitlin Wood
Last Updated October 21, 2013

It’s becoming an ever-increasing issue that we as a nation are consuming in large amounts. Often times we’re buying items that are not only unnecessary, but are also causing us to go further and further into debt. In terms of purchasing decisions, there are arguably only two categories: assets and toys. Buying assets increases our net worth and passive income, while buying toys does the opposite.

It helps here to define an asset:

An asset is anything tangible or intangible that is capable of being owned or controlled to produce value, and that is held to have positive economic value. In other words, an asset is anything that will put money in your pocket.

Examples can include anything from stocks and bonds, to real estate, businesses, and commodities such as oil and gold.

So what’s a toy then?

A toy is something that depreciates in value. This means that the moment you make the purchase, it is already losing its value and won’t generate you any more income. Everything from electronics, to cars, furniture and clothes, are all toys and should be treated as such.

So what does this mean for me exactly?

Ok, so we’ve figured out what can be considered an asset and what can’t, but how does that apply to you? Well, the problem comes in when we make purchasing decisions every day. We’re spending money that we don’t need to, and in a lot of cases we’re spending money we don’t even have by going into debt in order to make the purchase.

Adding in the depreciating factor of the majority of purchases that we make (being toys), we can see how this is such a huge issue. We’re not only spending the majority of our hard-earned money on items that depreciate in value, in some cases extremely rapidly (such as technology and cars), but we’re also going into debt in the process and paying significant amounts in interest every year.

Depreciating value of a toy + interest paid on debt to purchase = Unhappy consumer

There are cases however where we simply can’t avoid this equation. Whether we’re needing a new computer for work, we have to purchase a car in order to commute, or we have to buy items for a newly purchased house, sometimes it’s just a decision that needs to be made against us.

The key here is to minimize the unnecessary spending. The more you spend on items such as a new iPhone or that flat screen T.V., the worse you’re making your situation financially. Smart spending is crucial, and it’s important to remember that every dollar spent on an unnecessary purchase, is a dollar that can’t be invested and made to net you income down the line.

A closer look at assets will show us just how significant these decisions are. If your goal is wealth building (like most of us), then you have to realize how dramatic an investment in an asset will be to your net worth.

For example:

Say you have $5000 that you were going to spend on a new T.V., but you decide to invest in an asset instead.

At a growth rate of 10% per annum, in just 10 years that asset will have grown to $13,000

At a growth rate of 20% per annum, in just 10 years that asset will have grown to $30,000

At a growth rate of 30% per annum, in just 10 years that asset will have grown to $70,000

With these examples you can really see how drastic these purchases are, and how important it is to be cautious when it comes to buying unnecessary toys over assets.

At the end of the day, it comes down to necessities and your financial goals. Smart borrowing will mean that while you may go into debt in the process, you’re doing it for the right reasons and are increasing your net worth at the same time.

We all need to buy toys at some point, whether it’s out of pure necessity, such as a new car or clothes, or it’s just simply for a better quality of life (which is important too!). The key is to remember that if your goals are for financial freedom, and you don’t mind passing up that instant gratification for a more secure and care-free financial future, then purchasing assets over toys is definitely the way to go. Just remember to always get in touch with an expert before making a significant asset purchase to ensure your money is well spent.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Save With Loans Canada

Special Offers

Red American Express® Card

Red American Express® Card
Ends April 30, 2023

Earn up to 12,000 bonus Scene+™ points in your first year (that’s up to $120 towards travel).

View Offer
Cashback & Bonus Offer

Cashback & Bonus Offer
Ends March 1st, 2023

New Offer! Get up to $2,000 cashback + a $50 bonus on signing up. Conditions apply.

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.

View Offer
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.