What Are Depreciable Assets?
Depreciable assets are things you purchase that ...
- Last longer than 1 year, but eventually wear out or become obsolete and will need to be replaced.
- The cost of replacement requires months or years to save up for.
Specific types of depreciable assets include things like ...
- Appliances and fixtures, such as refrigerators, washers, dryers, microwaves, dishwashers, ceiling fans, ovens, stove tops, etc.
- HVAC: heating, ventilation, and air conditioning units.
- Electronics, such as computers, security systems, entertainment systems, etc.
- Home furnishings, such as couches, beds, tables, etc.
- Powered equipment, such as lawnmowers, garden tillers, power tools, garage door openers, etc.
- Motorized vehicles, such as cars, trucks, motorhomes, motorcycles, boats, 4-wheelers, snowmobiles, jet skis, etc.
- Non-structural building components, such as flooring, siding, decking, paint, roofing, windows, doors, etc.
- Landscape, such as paved or concrete driveways, retaining walls, lighting, storage sheds, etc.
To see a list of depreciating assets common to most homes, along with their estimated life expectancies, see the the National Association of Certified Home Inspectors Standard Life Expectancy Chart for Homes.
I would love to provide a direct link to the study done in 2006 by the National Association of Home Builders (sponsored by Bank of America Home Equity) entitled, "Study of Life Expectancy of Home Components", but the study has mysteriously been removed from the NAHB site.
Since I could find no explanation as to why the report is gone, I can only speculate NAHB and the banking sponsor no longer consider the report to be in their best interests.
What Makes Depreciating Assets Such Sneaky Budget-Busters?
That's easy. If you fail to budget for the replacement of your depreciable assets, each time an asset needs replacing you will be left with one of three choices:
- Don't replace the asset. This is fine for recreational vehicles, but you can't go without a working refrigerator. Plus, failing to replace components of your home as they wear out will diminish the value of your home.
- Rob money from other budget categories. Of course, the first category to get robbed is the most difficult and painful to cut back on: the entertainment category. Hence, most opt for number 3.
- Purchase the replacement on credit. But what happens then? That's right, your monthly obligations increase. Again, this leaves you less money to spend on entertainment and other perks that should come with being a hard-working individual.
This explains why failing to budget for the replacement of your personal assets eventually leads to a mountain of bills, a diminished lifestyle, and a deteriorated home.
Turn-Around Takes Twice the Effort
Want to get off the increasing debt treadmill? Want to fix your finances? Start setting aside cash to replace critical assets as they wear out.
Easier said than done, right?
That's because the amounts you are setting aside are on top of the payments you are making on all of your past purchases.
Can't afford to set aside cash to replace assets as they wear out? Then do what business owners do to turn their businesses around ...
Trade your essential assets for less expensive alternatives and sell off your non-essential assets for cash. Then apply the freed-up cash to your rapid debt reduction plan.
Later, once you've become debt free, you will then be able to replace your non-essential assets using the money that is now going to pay interest on your debts.
While downsizing is not easy, it is likely the best chance you have to get out of debt and stay out.
And sure, you will face budget setbacks on your journey to paying cash for asset replacement, but you will eventually turn the corner -- as long as you don't give up.