Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
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.
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.
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.
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.
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).
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
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.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
