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the key is stop trying to figure out what anyone else has or is worth and worry about your own life.
far to much time and effort is put in digging up all kinds of crap about how poorly everyone is supposed to be doing and then arguing about hypothetical situations.
i know when i was trying to better myself i didn't hang out in forum threads arguing how miserable everyone is. i frequented sites with some of the smartest successful people i know and spent my time learning from positive situations.
in fact most of my thousands of threads are passing that info on.
why folks would argue about how poor hypothetical people are or guesses at our population status escapes me.
As a single person who will someday need to assess the financial responsibility of a potential future wife, I think it is very relevant.
our brains can only deal with or imagine what we know and none of what we don't know so yes mystical many do not know what it is like to live any other way so they do not know what they are missing out on or even know enough about what the other side feels like to even care.
this is the life they know and what feels normal to them . as i say the median income is under 40k in this country and millions of folks do fine on it but they have no choice ,they have to like it our not. their lives have to fit the income..
but most would much prefer greater incomes if they could and would have no problem spending and enjoying that money.
Last edited by mathjak107; 12-15-2014 at 03:48 AM..
If you buy a $20k car, you bought a $20k. It really doesn't matter how much you put down and what was financed. For simplicity sake, assume the car loses this mythical "25%" the moment it drives off the lot which we all know is false. Just assume that false assumption, however.
If you put $0 down, you now owe $20,000 on a car that's worth $15,000. That is it subtracts $5,000 from your net worth.
If you put $10,000 down, you now owe $10,000 on a car that's worth $15,000. That is it adds $5,000 to your net worth. Of course you also put $10,000 down which subtracts $10,000 from your net worth. You still have subtracted $5,000 from your net worth.
If you put $20,000 down, you now owe $0 on a car that's worth $15,0000 (you can see where this is going).
The down payment is irrelevant to net worth. That's why I'll always put as little down as long as I can get a good interest rate. Current car loan is 0%. Likewise, the term of the loan is meaningless at 0% interest. With a two-year note you would pay the car off much faster but you'd be taking money out of your checking account. With longer term loans the interest can be higher. For example, the interest rate on a 72-month loan was 2.3%. Had they offered me a 72-month 0% loan, however, I would have taken it. I'm not worried about being upside down in the car. I'll either hold it longer (not a problem) or just trade in the negative equity. Worst case they won't roll it over and I'll have to payback the difference. Either way I still held onto my money for that four or five years and did something productive with it. If it's a down market and I'm going to pull out of equities because I'm hypothetically that upside down, I'd just hold onto the car longer.
The bold part hits the core of this exactly.
When you buy something, it's always balance sheet neutral. You don't gain or lose anything from a net worth perspective as a result of the purchase. You lose net worth when you are no longer able to resell the thing you purchased for the same value. Paying for a service goes straight to reducing your net worth though because you can't resell it.
For some things like food, the drop in resale value is pretty much instant. For other things like cars, the market value drops quickly up front and continues to decline. Things like houses tend to retain their value a bit more, So yes, if the car above were to lose $5,000 in value by driving it off the lot, then regardless of how much you put down, you have just lost $5k of networth.
Whether you put $0 down, purchased the car for $10k cash and $10k financed, or purchased the car for all cash, there was no net worth change while you were still in the dealership because the car was still at full value. In theory, you could just sell the car back for $20k, and you would have just as much money as you had before.
Where you lose is when you can't sell the car back for $20k anymore. Then, your net worth will drop by the drop in the car's value. If you have no other assets to offset the drop... you'll go negative.
The only way people wind up with negative net worth is when they buy things that can't be resold or drop in value after purchase. Buying "medical services" at a hospital has no resale value, so if you have medical expenses, those can send you negative. Buying a house will only send you negative if the property value declines or as a result of closing costs(services again). The decrease in cash, increase in debt, and increase in "house assets" all offset each other.
Quote:
Originally Posted by ncole1
You're not factoring in the fact that someone who puts $0 down may be doing so because they don't have $2,000 in the first place.
Malloric's math is correct. The only time your point comes into play is when figuring out the starting point for net worth. If they have less than $5k net worth to begin with, then yes, losing $5k because of the depreciation will send them negative. But how much they put down can't change the fact that they're losing $5k right away.
When you buy something, it's always balance sheet neutral. You don't gain or lose anything from a net worth perspective as a result of the purchase. You lose net worth when you are no longer able to resell the thing you purchased for the same value. Paying for a service goes straight to reducing your net worth though because you can't resell it.
For some things like food, the drop in resale value is pretty much instant. For other things like cars, the market value drops quickly up front and continues to decline. Things like houses tend to retain their value a bit more, So yes, if the car above were to lose $5,000 in value by driving it off the lot, then regardless of how much you put down, you have just lost $5k of networth.
Whether you put $0 down, purchased the car for $10k cash and $10k financed, or purchased the car for all cash, there was no net worth change while you were still in the dealership because the car was still at full value. In theory, you could just sell the car back for $20k, and you would have just as much money as you had before.
Where you lose is when you can't sell the car back for $20k anymore. Then, your net worth will drop by the drop in the car's value. If you have no other assets to offset the drop... you'll go negative.
The only way people wind up with negative net worth is when they buy things that can't be resold or drop in value after purchase. Buying "medical services" at a hospital has no resale value, so if you have medical expenses, those can send you negative. Buying a house will only send you negative if the property value declines or as a result of closing costs(services again). The decrease in cash, increase in debt, and increase in "house assets" all offset each other.
Malloric's math is correct. The only time your point comes into play is when figuring out the starting point for net worth. If they have less than $5k net worth to begin with, then yes, losing $5k because of the depreciation will send them negative. But how much they put down can't change the fact that they're losing $5k right away.
The point I was making is that the low down payment makes it possible for someone with <$5k net worth to buy the car, even with no pre-existing debt. Thus they end up negative.
But yes, the net worth hit amount is, strictly speaking, independent of down payment.
I didn't have a positive net worth until I was in my 30s. But until I graduated college, my net worth was basically $0. I had very generous parents, so didn't have to go into debt to buy what I needed, and I can't count my car as an asset at that time, since their name was on the deed with mine then.
So from the time I got married at 22 and assumed my husband's student loans and credit card debt, until I was about 30, my net worth was negative.
Since we had enough money every month to pay our monthly bills, it didn't really have a huge effect. However, the feeling of paying off that last (non-mortgage) debt is HUGE. For us, that happened while the housing market was still in the tank, and so we were still upside down on our mortgage, so even when we were debt free, our net worth was still negative.
So for us, being debt fee was a much bigger "feeling" than having a positive net worth.
I didn't have a positive net worth until I was in my 30s. But until I graduated college, my net worth was basically $0. I had very generous parents, so didn't have to go into debt to buy what I needed, and I can't count my car as an asset at that time, since their name was on the deed with mine then.
So from the time I got married at 22 and assumed my husband's student loans and credit card debt, until I was about 30, my net worth was negative.
Since we had enough money every month to pay our monthly bills, it didn't really have a huge effect. However, the feeling of paying off that last (non-mortgage) debt is HUGE. For us, that happened while the housing market was still in the tank, and so we were still upside down on our mortgage, so even when we were debt free, our net worth was still negative.
So for us, being debt fee was a much bigger "feeling" than having a positive net worth.
I've never really understood having a positive net worth AND being in debt simultaneously, at least in the long run. Bascally, A = L + E. If it's not a great situation to be in, then you should have the assets available to pay it off (since A > L). And if it's locked up in something like housing with a mortgage, the interest rates are usually very low compared to, say, credit card debt.
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