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Re: Are you counting mortgage principal as an expense?
Old 04-27-2007, 04:57 PM   #21
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Re: Are you counting mortgage principal as an expense?

Originally Posted by saluki9
Should I consider my 401(k) contributions and expense too?

Afterall, I can only change them once a year, and I have to 1.quit my job 2. pay a penalty and 3. pay income taxes to get the money. talk about an expense!

a home is a consumption item like art work on my wall or jewelry i wear . until the day comes it stops being a consumption item and can be converted to cash and spendable i dont count home equity in any of my financial calulations other than the bottom line for estate taxes. . since some may never sell there home or if they do they may spend as much on a new home counting home equity may be irrelevent . it just depends why you are counting it.


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Re: Are you counting mortgage principal as an expense?
Old 04-27-2007, 11:32 PM   #22
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Re: Are you counting mortgage principal as an expense?

Originally Posted by wab
I don't consider paying myself to be an expense, but a better question might be how to handle your mortgage payment for planning purposes with FIREcalc.

FIREcalc doesn't have an amortization calculator. It also doesn't understand that the principal payment comes back to you, or that the interest payment doesn't go up with inflation.

So, you probably want to exclude your entire mortgage payment from the "expense" entry in FIREcalc, and use the non-inflation-adjusted "increase withdrawals" field for your average interest payment over the remaining life of your mortgage.
I'm realizing based on the feedback that the biggest factor I need to consider is whether or not I plan on eventually downsizing my house in order to recapture the 'savings' that I'm convincing myself of making. If I plan on living in my current house forever, then I would agree with the 'principal=expense' crowd and say that it is indeed an expense, but I am planning (although 20 or so years down the road) of moving to a lower cost locale and getting that principal back, so I guess I'll keep thinking of it as a non-expense.

However, I like wab's 'switzerland' response the best - it seems like the best way to model the situation within FIRECALC w/o caring about whether it is or isn't an expense, and I hadn't considered this previously. (I'm going to try it out right now)

Thanks y'all,

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Re: Are you counting mortgage principal as an expense?
Old 04-28-2007, 02:14 PM   #23
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Re: Are you counting mortgage principal as an expense?

I account for it everywhere, balance, income, and cashflow. Principal and interest as an expense, Principal as an offsetting revenue gain. Principal as liability debt reduction and as an offsetting equity increase. (I use book value until sold.) Interest as an operating expense and principal as financing cash payment.

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