Living Asset-Light

By Jonathan Hoenig, Smart Money, August 30, 2010

It’s often said that the two happiest days of a boat owner’s life are the day they buy a boat and the day they sell it.

To that end, I am not a boat owner, a pool owner, a horse owner, a collector of wines, artwork, or much of anything else.

For years I have strived to live an asset-light life, focusing on accumulating financial possessions rather than physical ones. Simply put, I have come to abhor stuff. If someone broke into my home, they’d be surprised at how little there was to actually steal.

The "asset light" strategy was popularized by Enron in the last 1999s, when they determined that “heavy” assets like pipelines, which were expensive to build, buy and maintain, were no longer a competitive advantage. What mattered was information, ability…and capital.

That approach has merit for our personal finances despite the company’s demise. When it comes to your bank account, “asset light” means not wasting precious resources on purchases that don’t hold their value or those that aren’t actually assets, but liabilities...like a boat.

An asset light approach doesn’t mean asset free. It’s perfectly acceptable to enjoy weekend cars, stereo equipment, clothing or kitchenware. I’ve written about the past for my passion for used books and vintage computers.

The point is to be selective about the purchases you do make. That means cutting out the junk that loses its value the moment you bring it home. With the exception of precious metals, I can’t think of many physical positions that tend to hold their value. Keep that in mind the next time you step into a Brookstone or Pottery Barn.

Not long after they get their first job most adults develop the realization that it’s possible to appreciate something without having to own it yourself. Any “stuff” you might ever want or need will likely always by available, most likely deliverable, from highly competitive stores like Amazon, Overstock or eBay. The asset-light approach opts to warehouse most items at the store until you really need them rather than loading up on possessions just to have them on hand.

While consumption can be a kick, I’ve written before about how the best thing about having money isn't spending it, but rather knowing that you can spend it should the need or real interest arise. That security trumps any merchandise you might have flagged on your Amazon Wish List.

At the same time, an asset-light approach means learning to taking great pleasure in things that are unbelievably affordable: a steaming hot bath, a great television drama, a first rate hot dog or summer stroll in the park.

Clearly many are going this route: the recession has prompted the nation's savings rate to more than double to 6.4% and average amount of credit card debt falling to an 8-year low.

The idea is to spend money only for a specific purpose and value – not just the impulsive “high” that making a purchase can bring. Can our own government's recent spending binge make the same parsimonious claim?

An asset light strategy should include investing as well as saving your money into a zero-interest bank account. Thanks to a variety of innovative products, you can shift your wealth to bonds or yen or equities, cash or any other asset. That type of flexibility, and profit opportunity, is impossible with a house full of tchotchkes that just take up space.

I own some sentimental items, and like many shoppers benefit from bulk purchases of everyday household items at stores like Costco or Wal-Mart. But an asset light strategy means insuring you get the maximum amount of value out of those purchases you do make and end the habit of accumulating costly items that don’t hold their value over time.

Ancient Roman wisdom had it right: “An object in possession seldom retains the same charm that it had in pursuit.” An asset-light approach emphasizes saving, opportunistic investing and thoughtful but limited spending. The security and flexibility money affords is ultimately more valuable than anything it could ever actually buy.

http://www.smartmoney.com/investing/stocks/my-asset-light-life/#ixzz0y6WhczJL