Our two sons went to Minneapolis Public Schools surrounded by kids from a wide range of economic backgrounds. They each had friends who lived in simple homes with simple possessions, and they each had friends who lived in multi million dollar estates who walked the halls wearing expensive clothes and thumbing the latest gadgets.
Growing up experiencing such a wide range of material assets, it was important for our kids to understand the illusion of wealth. Having assets does not mean being rich. I explained it as imagine if every home were to have a flag pole out front. As part of the mortgage process, the appraiser paints the pole red up to the the liability of the mortgage. Put 20% down on your house? 80% of the pole is painted red. At signing, instead of getting a free pen from the title company, imagine if they issued you a pint of white paint. As years go by, as we do the pride of ownership march, we get to paint over more and more of the red on our flag poles. Need to refinance? We show up to closing and are issued red paint.
How many homes on your block would have flag poles all painted white? These owners have equity in their homes. We don’t own our homes until the last mortgage payment.
Owner’s Equity = Assets – Liabilities
One way to decide whether or not you should have our own authentic sauna is to start quantifying this formula.
- Sauna when you want to.
- Invite friends over to join.
- Better health.
- More joy.
- 10 other reasons detailed throughout this website.
- Cost of materials and stove.
- Time to build (or cost to pay someone to build).
- Space allocation.
How much do these assets outweigh their liabilities? That is your equity.
Some people find great equity in owning a sports car. Others devote a chunk of their extra change towards a golf membership. Or travel. Or latest gadgets. We choose to invest in sauna because the equity of the asset far outweighs the liability. That’s all there is to it.
Back in the 1980s, Madonna and The Police each told us that we are living in a material world. Since then, it has been up to us to always be evaluating whether our assets are outweighing our liabilities. If we lose focus on this, we will be working until we drop (dead) or we will receive no fruit cup in our government supported (meager) retirement home.
Let us think in terms of equity. Not in terms of assets.
It’s never too late to evaluate.