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It's all about context. To me my savings in an expense I account for in my current cashflow so any payment I make I consider an expense
Quote:
ex·pense
ikˈspens/
noun
noun: expense
1.
the cost required for something; the money spent on something.
"we had ordered suits at great expense"
synonyms: cost, price, charge, outlay, fee, tariff, levy, payment; informal,damage
"the expense of entertaining"
the costs incurred in the performance of one's job or a specific task, especially one undertaken for another person.
plural noun: expenses
"his hotel and travel expenses"
a thing on which one is required to spend money.
plural noun: expenses
"tolls are a daily expense"
synonyms: overhead, costs, outlay, expenditure(s), charges, bills, payment(s); incidentals
"regular expenses"
verb
verb: expense; 3rd person present: expenses; past tense: expensed; past participle: expensed; gerund or present participle: expensing
1.
offset (an item of expenditure) as an expense against taxable income.
The comment about the PhD was particularly focused at the individual in this forum currently working on her PhD. It was playful banter...
And YES it was absolutely something I was aware of when we bought the condo. We consciously bought when inventory was high and values and rates were low (spring 2012).
But do I need to think about it on a monthly basis?
No, I don't.
I could pay extra a month and bring down interest I'm paying, I could refinance perhaps for a 15 year note (higher interest rate)... or I could do what I am doing: filling up my 401k, tax managed accounts and my other investment vehicles. When your paying 3.8% interest I don't see any point really in thinking about it. As far as I know, I'm not a "fool" and I did get a "good deal". Our condo was bought at $350k and now they go for about $440k.
Explain why *I* need to think about it differently.
I wasn't trying to come off harsh and apologize if it seemed that way.
My point was simply that it wasn't as complicated as the thread had started to make it. Obviously not knowing about ongoing PhD efforts I read that as a way of pointing out that the thread had gotten very technical, i.e. PhD level accounting.
I realize most people were already aware of it and actually said as much in my post. I wasn't trying to imply that you were a fool, rather I was referring to the people who get tricked by car dealerships into paying more in interest by having a lower monthly expense and thinking they got a better deal.
At this point, there isn't much to consider if you've already made your purchase. It is something you or anyone should consider when agreeing to a loan/mortgage because while a 15 year mortgage may look like a higher expense because of the payment, the true expense is lower.
1ex·pense
\ik-ˈspen(t)s\
noun
: the amount of money that is needed to pay for or buy something
: an amount of money that must be spent especially regularly to pay for something
: something on which money is spent
Full Definition
1 archaic :the act or an instance of expending :expenditure
2 a :something expended to secure a benefit or bring about a result
b :financial burden or outlay :cost <built the monument at their own expense>
c :an item of business outlay chargeable against revenue for a specific period
Beyond that this thread is silly. #1 why would you care if people called princ payments an expense #2 they are expenses per multiple definitions of the word
Why do so many people treat car payments and house payments as a "monthly cost", when principal repayment causes a corresponding decrease in liability?
So I can balance my checkbook correctly and enter the correct monthly payments into our budget.
The discussion about our decrease in liability happens when we review the monthly statements.
Why do so many people treat car payments and house payments as a "monthly cost", when principal repayment causes a corresponding decrease in liability?
It is a "monthly cost" and expense. The car and mortgage payment you make each month reduces the amount you have to spend each month.
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 most people aren't accountants? The bottom line is you have to cough it up, no matter what you want to call it.
I realize most people were already aware of it and actually said as much in my post. I wasn't trying to imply that you were a fool, rather I was referring to the people who get tricked by car dealerships into paying more in interest by having a lower monthly expense and thinking they got a better deal.
It still can be a better deal depending on the interest rate, given the future value of money. What would you rather do. Buy a car with a 3 year repayment period @ .59% or a 5 year repayment period @ .79% interest?
It doesn't really require PhD level thought though, and it is something you should consider.
People understand the concept at a high level, but many don't think about why.
Simple example, if you were to borrow $10,000 and pay it back over 3 years instead of 5 years, your payment would be higher per month. But, you would be paying less in interest because even though your "Payment" is higher, your "Expense" is lower because the expense is only the interest portion. Paying down the principal faster means less interest per month.
The people who don't understand this concept are the fools who think they got a good deal when the car dealership raised their interest rate but pushed the payment out over 5 years instead. They only look at the monthly payment as the "Expense." It's not until you break it down that you see which option is really better.
It's something everyone should be aware of.
Above good illustration of paying extra towards principle!!!
Another example is paying extra towards principle on a mortgage.
Starting out term 30 years
One extra (13th) payment a year knocks (reduces) 7 years off term
The best is taken one payment dividing by 12, adding that 1/12th in with normal monthly payment.
The borrower gets reports as being more responsible to the Credit Bureaus and is rewarded with a high credit score
OP stressing the importance of the on time house payment's, because it is a secured loan. Not paying can result in foreclosure. Leading to damaged credit, leading to high bills, leading to getting one self deep into a hole it is very hard to get out of....
Why do so many people treat car payments and house payments as a "monthly cost", when principal repayment causes a corresponding decrease in liability?
so you are suggesting to take the full expense upfront when you make the purchase instead of spreading it over the years when you are actually making the payments?
Because no one will be auditing my budget to determine if I am following generally accepted accounting standards and all I need to know is how much I am spending each month.
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