Tag: money

Assets v. Liability

This post is a bit ironic as the only college class I dropped was Accounting 101. However, my last post touched on how I see clothing as a “liability”, so I wanted to explain more about how I consider my day to day budget in basic accounting terms.

Assets — Technically defined as anything you own that will provide future economic benefits. Let that sink in. No matter how beautiful the item is, unless it will somehow generate revenue for you (Poshmark sales do not count) it is not considered an asset. There are three primary types of assets:

  • Liquid Assets: Anything that can be turned into cash *asap* without losing value. Checking accounts, savings accounts, money market accounts, cash
  • Large Assets: Real estate, cars, art, jewelry (potentially). Assess your large assets by writing down what the current market value for each item is. Large assets market value can increase or decrease based on circumstances
  • Investments: Bonds, stocks, CDs, mutual funds, 401ks and retirement plans. Can also include real estate.

Liabilities— Anything that you owe. Student loans, debt, credit card payments, etc.

Cash Inflow— Everything that flows into your bank account. Salary, interest on investments, inheritance (lol). Cash Inflow either becomes an asset or is spent on items that do not affect net worth

Cash Outflow— Everything that flows out of your bank account. Rent or mortgage payment, groceries, gas, clothing, flights. Cash Outflow either becomes a liability (if you don’t have enough inflow to cover the cost) or is spent on items that do not affect net worth

I was stunned when I realized that despite my $$$ job and paychecks, my net worth was never going to increase unless I turned my cash inflow into assets.

We all need cash outflow to be a part of our budget to survive (groceries, furniture, gas). However, the bulk of my cash outflow was spent on items that devalued or disappeared the minute I bought them. My feet looked great in expensive shoes but my bank account did not. I was a successful sales woman in tech (making more money than my parents did at that age) and had nothing to show for it apart from a great wardrobe, cute apartment, and exciting Instagram feed.

Time to make a change.

How to Stop Spending On Clothes

As I sat scrolling Sezane’s new arrivals in a coffee shop on Sunday, it hit me— the most GORGEOUS dress.

Killer silhouette (with chest support), low back, 100% silk, a beautiful gold/green print that could almost look neutral. As a huge fan of the brand, I knew that this was one of their few “special” pieces that they launch each collection and do not replace once it sells out.

I mean…how can I resist?! Sezane’s Graziella Dress, $245

It had already sold out in Size 2 and 4. As a Size 6, I knew I had stumbled upon a rare window that would not last much longer.

And yet.

And YET.

I spent more money than ever last year on clothing (in small defense, it was my wedding year and I had a lot of dresses to buy). This year, my goal is to not buy any clothing for 6 months. I am 1.5 months in.

I stared at the Sezane screen for 20 minutes, envisioning the places I would wear it: my friends weddings, a night out in LA, a vacation in Mexico. I would curl my hair just like the model. I would be th emodel. I bought a long dress from Sezane last year (I think the same model lol) and loved it, and I knew this one would provide the same joy.

In impact, however, I knew in my heart of materialistic hearts that clothing does not have a positive ROI. Beyond the few clothes that I reach for day in and day out, the majority of my clothing does not get worn enough to justify the cost. And even if I do wear it frequently at first, I rarely keep it for more than 3 years.

In financial terms, I was prepared to spend $245 (+tax) on an item that I know in 2023 might be damaged, not fit my body or lifestyle, or be out of style. Multiply that by 15 purchases and I’m looking at my $3-5k / year clothing budget that provides zero ROI (other than a few cute Instagrams).

A cute (positive ROI?) Instagram, my cute Sezane dress from last year, and mi cute primas in Mexico!

To change my behavior, I’m trying a new approach— when tempted to buy an item of clothing, I can either purchase it OR take the money I would have spent and put it into high risk investing on Robinhood. As this was money already (almost) lost, I want to put it into a riskier investment than my other savings. If I make money I’m betting I’ll be motivated to put more towards it (and thus buy less clothing), and if I lose money – well – I clearly decided I could live without the money and with the dress that I’d forget about in 4 months anyway.

Let me know if you’re interested in my progress with this idea!