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Old 01-14-2015, 04:24 PM
 
12,705 posts, read 9,972,676 times
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Quote:
Originally Posted by CaptainNJ View Post
im pretty sure that even when looking at financial statements debt payments are an expense.

the OP has just developed his financial expertise by listening to people like dave ramsey and then filling in the gaps on his own.
Uh, no, they are not.

Loan proceeds are not income, and principal payments are not an expense - unless you are deviating from GAAP.
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Old 01-14-2015, 04:25 PM
 
18,857 posts, read 13,611,388 times
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Quote:
Originally Posted by ncole1 View Post
Uh, no, they are not.

Loan proceeds are not income, and principal payments are not an expense - unless you are deviating from GAAP.

Personal finance and gaap aren't the same

The US govt finances are nothing like a family households finances, you've seen those stupid Facebook posts and emails too right?
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Old 01-14-2015, 04:28 PM
 
71,577 posts, read 71,730,589 times
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A house is an expense ,it is your housing costs. The fact it may have a residual value down the road that may be higher or lower than what you paid is a separate issue.
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Old 01-14-2015, 04:30 PM
 
12,705 posts, read 9,972,676 times
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Quote:
Originally Posted by Lowexpectations View Post
So if someone offered you a interest free mortgage 100k for a year your take it right? The 8333.00 a month it would require from your cash flow should be any issue since there is no expense
This is where tight liquidity becomes a problem. I specifically said in cases where liquidity is not tight the payment doesn't matter.
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Old 01-14-2015, 04:31 PM
 
Location: Mount Laurel
4,165 posts, read 9,106,488 times
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Let's just take a look at mortgage

Mortgage: We are talking about a mortgage for a house your live in. Not investment properties because that is another whole different scenario.

One has a mortgage payment that usually covers principal, interests, taxes, insurance and whatever else. Within that payment, the amount is distributed in different proportion over time. In the beginning, almost nothing goes toward the principal. Your monthly payment is the cost for your shelter. Instead of paying for a mortgage, one could rent instead. That is call rent. BOTH ARE EXPENSES!!
No matter how you want to call it, it's your monthly expense. Just because you may eventually gain asset down the road doesn't make the mortgage payment not an expense.
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Old 01-14-2015, 04:35 PM
 
18,857 posts, read 13,611,388 times
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Quote:
Originally Posted by ncole1 View Post
This is where tight liquidity becomes a problem. I specifically said in cases where liquidity is not tight the payment doesn't matter.
You don't have to cash flow to cover this "non expense" most people's liquidity doesn't vary all that much month to month.
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Old 01-14-2015, 04:49 PM
 
Location: here
24,839 posts, read 30,089,193 times
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Quote:
Originally Posted by ncole1 View Post
Uh, no, they are not.

Loan proceeds are not income, and principal payments are not an expense - unless you are deviating from GAAP.
When you are working on a monthly budget, they certainly are an expense. People don't need and MBA, a PhD, or a CPA to create a monthly budget. They need to know how much they bring in and how much is going out.

I'm certainly smart enough to not go to a car dealer and say "I can afford $400/month!" However, knowing how much you can afford to pay each month is certainly a guideline that should be taken into consideration. Considering how much a house is going to appreciate over X number of years doesn't matter if you can't make the payment every month.
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Old 01-14-2015, 05:00 PM
 
2,303 posts, read 2,259,526 times
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Quote:
Originally Posted by Lowexpectations View Post
You are miscalculating net worth now. Assets - liabilities = net worth

Other than the fact you are completely wrong you don't even account for asset value fluctuation in your net worth calc
You are disconnected
The only disconnect is your belief that increasing an expense can result in an increase in total assets. That's what you're claiming is going on by calling it an Expense. How does a $500 expense increase your assets? That's the only disconnect here.

[Assets] - [Liabilities] = Net Worth, Agreed.

If you have:

$150k - $100k = $50k Net worth

Over the course of a month:

[Income] - [Expense] = Net Income
so
$2k - $500 = $1,500 Net Income

Let's assume that the $1,500 sits in your checking account and that you haven't paid down any debt or contributed to a savings account yet.

$151.5k - $100k = $51.5k

Let's assume that you move $500 to a savings account.

$151.5k - $100k = $51.5k

Let's assume you pay down debt of $500

$151k - $99.5k = $51.5k

No matter how you slice it, you're Net Income is the change in your Net worth. Moving assets to assets, or paying off liabilities with assets, doesn't change net worth.

Going back to the original numbers though, if you were to say that your $500 for savings was an expense, then your Net Income is reduced to only $1,000, yet you still have the same Increase in Assets.

If you were going to the movies and that ticket cost $10, that can only Decrease your assets(you pay cash) or increase your liabilities(put it on a CC).

An expense cannot increase an asset.
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Old 01-14-2015, 05:06 PM
 
18,857 posts, read 13,611,388 times
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Quote:
Originally Posted by Jeo123 View Post
The only disconnect is your belief that increasing an expense can result in an increase in total assets. That's what you're claiming is going on by calling it an Expense. How does a $500 expense increase your assets? That's the only disconnect here.

[Assets] - [Liabilities] = Net Worth, Agreed.

If you have:

$150k - $100k = $50k Net worth

Over the course of a month:

[Income] - [Expense] = Net Income
so
$2k - $500 = $1,500 Net Income

Let's assume that the $1,500 sits in your checking account and that you haven't paid down any debt or contributed to a savings account yet.

$151.5k - $100k = $51.5k

Let's assume that you move $500 to a savings account.

$151.5k - $100k = $51.5k

Let's assume you pay down debt of $500

$151k - $99.5k = $51.5k

No matter how you slice it, you're Net Income is the change in your Net worth. Moving assets to assets, or paying off liabilities with assets, doesn't change net worth.

Going back to the original numbers though, if you were to say that your $500 for savings was an expense, then your Net Income is reduced to only $1,000, yet you still have the same Increase in Assets.

If you were going to the movies and that ticket cost $10, that can only Decrease your assets(you pay cash) or increase your liabilities(put it on a CC).

An expense cannot increase an asset.

Personal net income isn't what you are applying it as

Further more if I own tsla and it doubles from one month to a next but I have no net income change my net worth does in fact change. You are making up your own definitions


If I considered my mortgage payment an expense it does lower my debt load and raise my net worth. I could consider is an expense, boogers or the devil and it would still function the same decrease my outstanding debt and increase my net worth
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Old 01-14-2015, 05:11 PM
 
2,303 posts, read 2,259,526 times
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Quote:
Originally Posted by Lowexpectations View Post
Personal net income isn't what you are applying it as

Further more if I own tsla and it doubles from one month to a next but I have no net income change my net worth does in fact change. You are making up your own definitions
Still not sure what this "Personal" version of Net Income is that's something beyond Income - Expense. That's the only definition I've ever seen for it.

And for what it's worth, I treat that as Investment Income when I track my finances. The fact that I haven't sold it, doesn't mean I haven't made money. Similarly holding onto shares of a company that went bankrupt doesn't mean I hadn't lost money.

It may not be taxable, and you could wind up with an expense when it gets cut in half next month, but it's still income now.
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