It comes naturally to people with a finance / accounting background to try and compute an ‘intrinsic value’ for everything.
When I was looking to buy a car a few years ago, I was trying to understand how much of the car value would get struck off right out the showroom. This is why some people only buy used cars. A subsequent survey revealed to me that about 20% of the value of the car would get depreciated at the end of year 1 itself. As I was trying to get my hands around these numbers, I reached out to a very good friend for advice.
“Hey, I’m trying to figure this car purchase out. Seems like a sunk cost this thing. I put in money, and then a fifth gets wiped out in 1 year. This depreciation of the asset seems too high. What should I do?”
My friend said, “Dude, chill, you yourself are a depreciating asset. We all are! Do you realize that? Just do what you want, but enjoy the moment!”
It’s not like we do not know it. But the way he put it – it really opened my eyes. Why was I worrying about depreciating assets, while I myself was/am depreciating? This is not to say one must not be savvy about personal finances. Much the opposite in fact. But trying to save every last penny is likely to result in anxiety that negates the benefit from the savings.
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