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Old 01-14-2015, 02:30 PM
 
2,303 posts, read 2,259,526 times
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Quote:
Originally Posted by Lowexpectations View Post
Changing how I view things doesn't make it easier to save and payoff debt. If I view my retirement as an expense it's actually easier for me to plan around and accomplish
Some people. Everyone has there own reasoning. Some people focus on low balance vs highest rate because they need the emotional aspect to motivate them. Similarly some people need the knowledge that they aren't losing the money when they pay off debt or put money away for retirement.
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Old 01-14-2015, 02:53 PM
 
3,946 posts, read 4,041,942 times
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Quote:
I don't think anyone would consider taking out a loan to be income, so it doesn't make sense to me to consider paying it off an expense, but I'm probably more accounting focused than most.

Plenty of people think of taking out loans as income, ie home equity loans. I think of home equity loans as income too, because it is, with the monthly bill as an expense. It's simply not salary income. When granny sends me a $5 check for my birthday, that's income too.

I consider my 401k to be an expense. The concept of net worth is almost completely irrelvant to a household, beyond internet bragging rights and statistical calulations. How often do you even tell someone your net worth? Is it used for taxes? It is only used against you (in college applications).

In short, household incomes are not business incomes, and goverment accounting is not relevant to business accounting.
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Old 01-14-2015, 02:54 PM
 
Location: Portal to the Pacific
5,153 posts, read 5,098,450 times
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Quote:
Originally Posted by Electrician4you View Post
Because people dont dissect the payment to that extent. I believe a lot of peoplr equate any outgoing payment as a cost. Probably the same reason people shop by monthly payment to allocate the "cost" against their income. That's just how some people are mentally trained/taught/think how to " afford" something.
I definitely include 401k, 529s and our other automatically deducted investments as "monthly expenses". It's kind of been a problem lately, but completely a psychological one, and one that is easily remedied by a change in perspective and maybe a call to my financial advisor. When we set everything up last summer we were working under a different set of variables, but the variables changed in the fall (mainly, we've added a monthly $750 expense for supplemental educational services for one of the kids). The holidays are always more expensive months and then we bought furniture... but all together instead of our account having more money at the end of each month, it has less: While we are investing thousands of dollars every month, our bank account is slowly dwindling...

I'm trying a couple of things before making the silly-stupid phone call to reduce our deductions. I'm reducing spending in other areas, trying to work a little more.... but in the end I think we'll just have to readjust.

I still think this whole thread is a bit silly for most people in most context.
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Old 01-14-2015, 02:55 PM
 
Location: SoCal desert
8,093 posts, read 13,232,688 times
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Quote:
Originally Posted by ncole1
Why do so many people treat car payments and house payments as a "monthly cost", when principal repayment causes a corresponding decrease in liability?
Because many people are sensible, and other people just like to complicate things needlessly.
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Old 01-14-2015, 03:06 PM
 
18,857 posts, read 13,611,388 times
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Quote:
Originally Posted by Jeo123 View Post
Some people. Everyone has there own reasoning. Some people focus on low balance vs highest rate because they need the emotional aspect to motivate them. Similarly some people need the knowledge that they aren't losing the money when they pay off debt or put money away for retirement.


That really has nothing to do with left hand right hand. Me changing how I view it changes nothing
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Old 01-14-2015, 03:13 PM
 
2,303 posts, read 2,259,526 times
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Quote:
Originally Posted by Lowexpectations View Post
That really has nothing to do with left hand right hand. Me changing how I view it changes nothing
Quote:
Originally Posted by Lowexpectations View Post
Changing how I view things doesn't make it easier to save and payoff debt. If I view my retirement as an expense it's actually easier for me to plan around and accomplish
Right. I said for some people it's harder when they view it as an expense. I didn't say all people. Everyone has their own way of looking at it. If something is working for you, then do that. If you can't stick to a system that works, you may need to change how you view things.
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Old 01-14-2015, 03:15 PM
 
18,857 posts, read 13,611,388 times
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Quote:
Originally Posted by Jeo123 View Post
Right. I said for some people it's harder when they view it as an expense. I didn't say all people. Everyone has their own way of looking at it. If something is working for you, then do that. If you can't stick to a system that works, you may need to change how you view things.

Why would viewing something as an expense make it harder to save?
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Old 01-14-2015, 03:48 PM
 
2,303 posts, read 2,259,526 times
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Quote:
Originally Posted by Lowexpectations View Post
Why would viewing something as an expense make it harder to save?
Simple example from a pure expense perspective.
Scenario 1
Monthly car payment $100
401(k) contribution: $50
[...Other Income/Expenses...]
Net Income: $250

Scenario 2
Monthly car payment $200
401(k) contribution: $100
[...Other Income/Expenses...]
Net Income: $100

If you view paying down debt and saving as an expense only, scenario 2 doesn't look very appealing. After all, your net income is lower.

Same situation with a different perspective(the accounting methodology)

Scenario 1
Interest Expense: $15
Weekly Tax liability: $XXX
[...Other Income/Expenses...]
Net Income: $YYY

Scenario 2
Interest Expense: $13
Weekly Tax liability: $XXX - $13
[...Other Income/Expenses...]
Net Income: $YYY+15

When you view all cash outflow as Expense, it makes it look like you're making less money by putting it to savings and paying down debt. When you view it from an accounting perspective, you can see where increasing these so called "expenses" actually increases your net income.

For some people, seeing the increasing net worth makes it easier to stick to a plan. Knowing that an extra $1,000 increased your monthly net income makes it easier to mentally justify writing the check.
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Old 01-14-2015, 03:53 PM
 
Location: southwestern PA
20,419 posts, read 37,649,557 times
Reputation: 39054
Our savings and our stock purchases are considered expenses to us.
Something we have to pay every.single.month... just like the electric, the gas, etc.
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Old 01-14-2015, 03:58 PM
 
18,857 posts, read 13,611,388 times
Reputation: 14281
Quote:
Originally Posted by Jeo123 View Post
Simple example from a pure expense perspective.
Scenario 1
Monthly car payment $100
401(k) contribution: $50
[...Other Income/Expenses...]
Net Income: $250

Scenario 2
Monthly car payment $200
401(k) contribution: $100
[...Other Income/Expenses...]
Net Income: $100

If you view paying down debt and saving as an expense only, scenario 2 doesn't look very appealing. After all, your net income is lower.

Same situation with a different perspective(the accounting methodology)

Scenario 1
Interest Expense: $15
Weekly Tax liability: $XXX
[...Other Income/Expenses...]
Net Income: $YYY

Scenario 2
Interest Expense: $13
Weekly Tax liability: $XXX - $13
[...Other Income/Expenses...]
Net Income: $YYY+15

When you view all cash outflow as Expense, it makes it look like you're making less money by putting it to savings and paying down debt. When you view it from an accounting perspective, you can see where increasing these so called "expenses" actually increases your net income.

For some people, seeing the increasing net worth makes it easier to stick to a plan. Knowing that an extra $1,000 increased your monthly net income makes it easier to mentally justify writing the check.


Nothing you posted makes you look like you are making less money. Viewing things as an expense or not doesn't change the impact on your net worth. Regardless of you you view princ payments and expense or not the impact on net worth is the same. Your logic isn't connecting

You are also misusing the term net income in how you are applying it to personal net income
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