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Vs spending it or burning it? Yes. Vs having it in cash? No. But I never said differently. Again you are assuming i said the actual act of making the mortgage payment caused the increase. Correlation does not equal causation.
If you can find the post where I said when I make an additional principal payment of $400 from my savings account I end up with a higher networth (the actual act) you win this discussion. Surely it's here because that's what you are saying I said.
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Originally Posted by mizzourah2006 I track my networth monthly and as my paycheck comes in some of it goes into savings other into paying down my mortgage, some going into spending. Clearly anything that increases my investments/savings or decreases my debt increases my networth.
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Originally Posted by mizzourah2006 Clearly. But I could have spent that on skittles and it would have not changed my networth, by choosing to pay down debt instead of wasting the money it ends up being an increase in my networth.
I'm not sure what you gain by continually insisting that you didn't write what you in fact did write.
Below are a ton articles talking about the connection between debt reduction and net worth. Now, do all of these authors think that the single act of transferring cash from one's checking account to a creditor increases net worth? Of course not! (But by all means keep saying that because stating the obvious is so impressive!)
Strictly speaking, yes, but normally the term "savings" is not used for money spent within the same budget period (e.g. monthly) as it is earned.
Whether you understand it that way or not, the money can't be spent without it it first increasing the asset side of the equation. You have tried to come up examples that bypass the asset increase, but it doesn't work that way.
Earlier you insisted that net worth is not impacted by the purchasing of a depreciable good. I take this to mean that you are asserting that "assets" is defined more like "inventory" than like "liquidation value".
I insisted upon it because that that is the correct treatment. What you and so many others seem to be missing is that the purchase of a depreciable good is completely separate and distinct from the later effects of the depreciation of that good.
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I can assure you that when my parents went through their divorce the court did not see it your way - the assets were accounted for based on their resale value, not their original purchase price.
Of course they didn't see it that way - why would they? A balance sheet, but for few exceptions, doesn't report current market values, doesn't claim to do so, and only a layman would expect otherwise.
You seem to get very upset that your "understanding" of accounting isn't correct. It isn't what you think it should be, and so you get all riled up, trying any way that you possibly can to come up with situations that will result in your beliefs actually being reality. Do you do this in other areas of your life, or is it just with accounting/tax issues?
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If lawyers define a word one way and accountants define it another, who's right? Again language is imprecise and to deny this basic fact is extremely narrow-minded.
Depends on the context. An asset is defined very clearly in accounting. If you, or a lawyer want to define it differently for whatever purpose, fine. But it isn't fine to claim that your alternative understanding is (or should be) the reality for accounting purposes.
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If you like we can all go around talking about assets(1) and assets(2) or assets_# and assets*. Is this what you want? I'm sure we can play this game but then we have no way of knowing which definition was meant in every earlier post that was made, except for context of course.
I don't care what you do. But understand that your alternative views of things still don't change the underlying reality. And in the context of this discussion, paying down a liability (actually conveying assets to a creditor in full or partial satisfaction of an obligation) does NOT result in an increase in equity (net worth).
Originally Posted by TaxPhd Pay down debt, or spend it on consumer goods, net worth STILL remains unchanged.
This thread is hysterical, with all the non-accountants (as well as CPA/CFO's) trying to explain accounting.
Considering the context of the OP was calculating networth on a yearly basis this can only mean he is saying that the consumer goods don't depreciate.
I didn't say anything of the sort. RIF. Re-read my post. It doesn't say what you are claiming.
This is becoming rather surreal. You continually claim that you didn't write what you in fact did, and now you claim that a plain language sentence written by someone else means something else entirely from what was actually written.
Below are a ton articles talking about the connection between debt reduction and net worth. Now, do all of these authors think that the single act of transferring cash from one's checking account to a creditor increases net worth? Of course not! (But by all means keep saying that because stating the obvious is so impressive!)
I would hope that those authors wouldn't think that. But you clearly did, based on your first two posts in this thread. . .
In this first post, you claim that the debt payment was itself a component of the net worth increase, along with the subsequent market gains.
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Originally Posted by SaucyAussie
I prefer to think of net worth in absolute terms. I try to increase by 100K each year. That could look something like this - 30K savings + 30K debt payments + 25K market gains + 15K house value.
Of course, that does require the co-operation of the markets...
In this next quote, you state it outright - "So any reduction in debt (liabilities), increases net worth."
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Originally Posted by SaucyAussie
Net worth = Assets - Liabilities. So any reduction in debt (liabilities), increases net worth.
If you have since come around to a better understanding of this issue, terrific. But your attempt at revisionist history doesn't bolster your position.
is there a certain percentage of income you should be increasing your net worth by on annual basis? just looking for a guide.
right now i have a savings account, a checking account, my 401(k) (regular & roth) through work, and a fidelity account. i don't own a home or have any other major assets. as of right now my net worth has increased 38% since January 1st, 2016, but i took my total savings YTD divided by my annual salary. is that the right way to do it? is that a good percentage?
just trying to set some goals. is this even a good measurement to use? thanks!!
Fidelity had an article awhile back and it said a good goal was to have Net Investable Assets at the following milestones:
Age 30 - 1 years worth of income
Age 40 - 3 years worth of income
Age 50 - 5 years worth of income
Age 60 - 8 years worth of income
I'm not sure if I have that exactly right, but I think I'm close. The kicker is that your income will (hopefully) be going up, so it's not as linear as it may look. The thought process behind the model must be that regardless of your income, it is the rate of saving, or investing prowess to make up the difference.
So if you're making 100 at age 50 - That's $500K in savings.
If you're making 150 at age 60 - That's $1.2M in savings.
Fidelity had an article awhile back and it said a good goal was to have Net Investable Assets at the following milestones:
Age 30 - 1 years worth of income
Age 40 - 3 years worth of income
Age 50 - 5 years worth of income
Age 60 - 8 years worth of income
I'm not sure if I have that exactly right, but I think I'm close. The kicker is that your income will (hopefully) be going up, so it's not as linear as it may look. The thought process behind the model must be that regardless of your income, it is the rate of saving, or investing prowess to make up the difference.
So if you're making 100 at age 50 - That's $500K in savings.
If you're making 150 at age 60 - That's $1.2M in savings.
The income * x model is especially flawed for savers and a reason why it should really roll from expenses. If I make 200k a year and save 100k why would I base my multiple on 200k? I shouldn't
I insisted upon it because that that is the correct treatment. What you and so many others seem to be missing is that the purchase of a depreciable good is completely separate and distinct from the later effects of the depreciation of that good.
Of course they didn't see it that way - why would they? A balance sheet, but for few exceptions, doesn't report current market values, doesn't claim to do so, and only a layman would expect otherwise.
You seem to get very upset that your "understanding" of accounting isn't correct. It isn't what you think it should be, and so you get all riled up, trying any way that you possibly can to come up with situations that will result in your beliefs actually being reality. Do you do this in other areas of your life, or is it just with accounting/tax issues?
Depends on the context. An asset is defined very clearly in accounting. If you, or a lawyer want to define it differently for whatever purpose, fine. But it isn't fine to claim that your alternative understanding is (or should be) the reality for accounting purposes.
I don't care what you do. But understand that your alternative views of things still don't change the underlying reality. And in the context of this discussion, paying down a liability (actually conveying assets to a creditor in full or partial satisfaction of an obligation) does NOT result in an increase in equity (net worth).
And the entire thread did not specify that we mean net worth in the sense accountants would define rather than in the sense lawyers would define. You are putting that meaning into it.
You are again reading things into my comments that I did not say. I said that buying a consumer good decreases your net worth, not that it does so at the instant it was purchased. And you still are somehow misinterpreting everything I say multiple times to conclude that I think the act of sending money to a creditor causes net worth to go up, despite my best effort to show how I did not say that and never have. You still have not acknowledged the point I made that logical implication is not causation (post #227). I have nothing new to add at this point, I can only wait for you to properly interpret what I have already said. I'm not going to repeat it because you'll misinterpret me again.
And the entire thread did not specify that we mean net worth in the sense accountants would define rather than in the sense lawyers would define. You are putting that meaning into it.
You are again reading things into my comments that I did not say. I said that buying a consumer good decreases your net worth, not that it does so at the instant it was purchased. And you still are somehow misinterpreting everything I say multiple times to conclude that I think the act of sending money to a creditor causes net worth to go up, despite my best effort to show how I did not say that and never have. You still have not acknowledged the point I made that logical implication is not causation (post #227). I have nothing new to add at this point, I can only wait for you to properly interpret what I have already said. I'm not going to repeat it because you'll misinterpret me again.
Explain to me how accountants and lawyers would interpret net worth and what the difference would be. In my experience attorneys are "experts" in law not so much in the world of finance
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