Self Definition, Stop Calling Your Liabilities Assets
We've become remarkably creative with the word asset. Apparently a house with a thirty year mortgage is an asset. A seventy grand car bought on finance is an asset. An expensive watch is an asset. Give it another few years and somebody will be standing outside Wetherspoons explaining that his overdraft is part of a diversified portfolio. Anton Kreil has a much simpler way of looking at it. If something puts money into your pocket, it's an asset. If it takes money out, it's a liability. I like simple definitions because they stop bullshit breeding.
The house is the obvious one because property has become something close to a religion in Britain. Tell somebody their home might not be an asset and they react as though you've walked into Canterbury Cathedral and pissed in the font. But look at what the thing actually does. Mortgage payments go out, insurance goes out, maintenance goes out, repairs go out, then the boiler dies and suddenly you're standing in the kitchen handing three grand to a plumber because a metal box attached to the wall has decided it no longer believes in heat. The house might increase in value, fine, but while you're living in it the bastard eats.
If there's a mortgage attached, the bank also has a rather interesting definition of your ownership. Stop paying them and you'll discover it. A thirty year mortgage is basically rent to own with better curtains and considerably more paperwork. The bank hands you a massive pile of money and you spend the next three decades returning an even bigger pile. People call this security. Thirty years of compulsory payments doesn't sound particularly secure to me. It sounds like somebody has parked a cement mixer on your calendar. You can change jobs, start a business, take six months off or do anything else you fancy, provided the large monthly payment continues arriving at the bank with the punctuality of a German train.
That's the part of Kreil's argument that interests me. Freedom. Assets and liabilities make much more sense when I measure them against freedom rather than possessions. Does this thing give me options or does it eat them. That's a much better question than whether I can technically describe myself as its owner. Something can look impressive sitting outside the house while quietly chewing through my future income like a rat in a bag of bread.
Cars are brilliant examples because the entire car finance industry appears to have been designed by people who realised human beings stop understanding large numbers once they're divided by forty eight. Tell somebody a car costs sixty thousand pounds and they'll choke on their tea. Tell them it costs nine hundred pounds a month and suddenly it's manageable. No, it isn't. They've just chopped the elephant into sausages. It's still an elephant. Then they bury the transaction underneath Personal Contract Purchase, balloon payments, Guaranteed Future Values and deposit contributions until buying a Volkswagen sounds like restructuring the Greek national debt.
The wonderful bit is watching somebody finance an expensive car and then describe it as their asset. It isn't. The finance company owns the important bit. You're driving their car around, insuring it, washing it, servicing it, putting tyres on it and carefully avoiding supermarket trolleys. They've somehow outsourced the maintenance of their property to you and convinced you to pay them for doing it. That's almost beautiful. The car sits outside looking wealthy while the direct debit crawls into the bank account every month with a knife and fork.
Consumer debt takes the same trick and spreads it across the rest of life. Phones, furniture, televisions, clothes and holidays can all be bought now and paid for later. Buy now, pay later deserves a place in a museum beside other magnificent human inventions such as asbestos insulation and leaded petrol. The translation is simple. Enjoy something today and send the bastard bill into the future. I've never liked that arrangement. If I want something, I'd rather pay for it. If paying for it makes me wince so hard that my face resembles a bulldog eating a lemon, that's useful information. Maybe I can't afford it.
Monthly payments hide that information. That's their genius. They turn unaffordable objects into affordable months. You don't buy the sofa, you buy April, then May, then June, and by Christmas you're still paying for somewhere to sit. Holidays are even better. The holiday finishes, the tan disappears, the photographs vanish into the digital landfill on your phone and the buffet has passed through your digestive system and entered another geological era. The payments remain. You're sitting at home in November paying interest on a pina colada you drank in July. That's not a memory, that's a haunting.
None of this means I think spending money is bad. Quite the opposite. I like spending money on things I enjoy. Money sitting permanently in an account doing nothing isn't freedom either. That's just numbers being kept as pets. I don't want to spend my life eating supermarket noodles while sitting on a plastic chair because compound interest might make me extremely wealthy three weeks before I die. What would be the fucking point. The distinction for me is between spending money and surrendering future freedom, and those aren't remotely the same thing.
Buying something I can afford means the transaction ends. I give somebody money, they give me the thing and everybody can go home. Debt keeps the transaction alive. The thing follows you around carrying a bowl. Feed me this month. Feed me again next month. Don't forget the interest. Enough of those bowls eventually turn payday into feeding time at the zoo. Your salary arrives and every liability starts banging against the bars waiting for its bit of meat.
That's where building your own infrastructure comes into it. Kreil is savage about relying on governments, employers, pensions and banks to arrange your future, and I understand the suspicion. Systems don't love you. They don't hate you either, which might be worse. You're a number in a database wearing shoes. An employer can restructure, a government can change the rules, a pension age can move, taxes can change and banks can alter rates. None of these organisations sit around a conference table asking whether Derek from Wolverhampton is going to be all right. Derek isn't on the agenda.
Building your own infrastructure is the opposite of waiting for Derek to appear on the agenda. It's having your own foundations. Cash, investments, skills, independent sources of income and things you actually own. None of this looks particularly impressive on Instagram. A large cash reserve doesn't have leather seats. An investment account can't be parked outside a restaurant. A useful skill doesn't come with a German badge on the bonnet. Financial independence is terrible at posing for photographs.
But there's something much better it can do. It can say fuck off. That's one of the finest luxuries money provides. Not champagne, watches or business class. It's the ability to look at an arrangement you dislike and realise you don't have to accept it. Fuck off money doesn't have to mean millions. It means having enough infrastructure underneath you that one broken pipe doesn't flood the entire house. Lose one source of income and there are others. Something expensive breaks and there's cash. Plans change and you can move. An opportunity appears and you can take it. Somebody tries to corner you and discovers there's another door.
The irony is that people often surrender exactly that freedom trying to look wealthy. Bigger house, better car, new kitchen, another holiday and another monthly payment. Eventually they've built a beautiful life with the financial characteristics of a Jenga tower. Everything looks magnificent, just don't touch anything. One redundancy, one interest rate change, one unexpected bill and somebody has pulled out the wrong block.
I've always preferred infrastructure to appearances. The things underneath matter more than the things sitting on top. Nobody visits a house and compliments the sewage pipes. Lovely waste disposal system you've got there, mate. But remove them and see how much everybody enjoys the marble worktops. That's what financial infrastructure feels like to me. It's boring until you need it, and then it's everything.
So I don't particularly care whether somebody else calls something an asset. I care what it does. Does it put money in or take money out. Does it increase my choices or reduce them. Does it belong to me, or am I feeding it every month like an obese Labrador that has somehow learned to send direct debits. Most of the financial world can keep its complicated definitions. Freedom is the asset I'm interested in. Everything else either helps support it or spends its life eating from the bowl.
Anyway, I've spent long enough thinking about liabilities. I'm going to pour a beer and do absolutely nothing productive for a while.