Comments on: The Asset with Liability Written All Over it http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/ Take control of your finances. Fri, 21 Nov 2008 12:50:35 +0000 http://wordpress.org/?v=2.5.1 By: Average_Joe http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-85 Average_Joe Fri, 31 Mar 2006 02:15:49 +0000 http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-85 When I said: "If I lost my job, my house would quickly drain my savings! And that is not even including the mortgage." All I meant to say was, unlike a stock or GIC (which costs me no money to maintain), a house would continue to cost me money. It doesn't put my money directly in my pocket by just owning it. And if I lost my job, of course my income wouldn't be big enough, it would be zero at that point. It is funny that we all agree it is an asset, yet the debate goes on. :) Really makes you think. When I said:

“If I lost my job, my house would quickly drain my savings! And that is not even including the mortgage.”

All I meant to say was, unlike a stock or GIC (which costs me no money to maintain), a house would continue to cost me money. It doesn’t put my money directly in my pocket by just owning it. And if I lost my job, of course my income wouldn’t be big enough, it would be zero at that point.

It is funny that we all agree it is an asset, yet the debate goes on. :) Really makes you think.

]]> By: Canadian Capitalist http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-84 Canadian Capitalist Thu, 30 Mar 2006 20:18:14 +0000 http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-84 Of course, I expect my investments to grow over time. Otherwise I wouldn't be investing! Investing by definition is putting up money today in the expectation of having more money tomorrow. "I can’t agree with you there. It just means your income isn’t large enough to cover the expense. Re-mortgaging might help." How does remortgaging help? If I can't carry the expenses involved in owning my home, I can either get into debt or sell and move to a lesser priced home. Getting into debt is precisely how a home could become a drain on the cash flow. Of course, I expect my investments to grow over time. Otherwise I wouldn’t be investing! Investing by definition is putting up money today in the expectation of having more money tomorrow.

“I can’t agree with you there. It just means your income isn’t large enough to cover the expense. Re-mortgaging might help.”

How does remortgaging help? If I can’t carry the expenses involved in owning my home, I can either get into debt or sell and move to a lesser priced home. Getting into debt is precisely how a home could become a drain on the cash flow.

]]> By: Investing Intelligently http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-83 Investing Intelligently Thu, 30 Mar 2006 19:12:49 +0000 http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-83 CC: depreciation is actually an expense drawn on the asset. So you would have a positive number going into an expense account called "depreciation" and a negative transaction called "asset depreciation" on the asset itself. But actually a negative asset is like a liability so in that sense I guess the depreciation is like a liability! But it would totally not make sense if you looked at your accounts after a few years, you would see an asset (at it's original price you paid) and a liability (equal to the amount of depreciation). Rather than an asset showing a present value which incorporated the depreciation. "I expect an investment to grow over time" A bit of an assumption there? "Joe is making the point that a house (even a fully paid one) could easily become a liability if the owner cannot afford pay property taxes or afford the huge costs involved in maintaining a house." I can't agree with you there. It just means your income isn't large enough to cover the expense. Re-mortgaging might help. James said: "why do we include homes in net worth calculations" There's all sorts of different measures. You could easily just leave it out. Companies classify their assets in varying degrees of liquidity don't they? CC: depreciation is actually an expense drawn on the asset. So you would have a positive number going into an expense account called “depreciation” and a negative transaction called “asset depreciation” on the asset itself. But actually a negative asset is like a liability so in that sense I guess the depreciation is like a liability! But it would totally not make sense if you looked at your accounts after a few years, you would see an asset (at it’s original price you paid) and a liability (equal to the amount of depreciation). Rather than an asset showing a present value which incorporated the depreciation.

“I expect an investment to grow over time”

A bit of an assumption there?

“Joe is making the point that a house (even a fully paid one) could easily become a liability if the owner cannot afford pay property taxes or afford the huge costs involved in maintaining a house.”

I can’t agree with you there. It just means your income isn’t large enough to cover the expense. Re-mortgaging might help.

James said: “why do we include homes in net worth calculations”

There’s all sorts of different measures. You could easily just leave it out. Companies classify their assets in varying degrees of liquidity don’t they?

]]> By: Canadian Capitalist http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-82 Canadian Capitalist Thu, 30 Mar 2006 15:47:52 +0000 http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-82 Dave: Sure a car (and boat) is an asset in the net worth statement, but owning one is a liability because over time they depreciate and costs a ton of money to maintain. The key difference between an investment and a car is I expect an investment to grow over time, but a car is guaranteed to cost you money over time. A house is not as clear cut as a car. It generally appreciates over time, keeps pace with inflation and provides value in the form of shelter. Joe is making the point that a house (even a fully paid one) could easily become a liability if the owner cannot afford pay property taxes or afford the huge costs involved in maintaining a house. Dave: Sure a car (and boat) is an asset in the net worth statement, but owning one is a liability because over time they depreciate and costs a ton of money to maintain. The key difference between an investment and a car is I expect an investment to grow over time, but a car is guaranteed to cost you money over time.

A house is not as clear cut as a car. It generally appreciates over time, keeps pace with inflation and provides value in the form of shelter. Joe is making the point that a house (even a fully paid one) could easily become a liability if the owner cannot afford pay property taxes or afford the huge costs involved in maintaining a house.

]]> By: James http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-81 James Thu, 30 Mar 2006 14:05:13 +0000 http://www.diyfinances.com/2006/03/29/the-asset-with-liability-written-all-over-it/#comment-81 I've never read kiyosaki's books, maybe I should he seems to stir a wide debate. I see it like this. Owning a home is a liability...the home itself is an asset. BTW...why do we include homes in net worth calculations? I would be much happier(and financial secure) with a $250,000 home and $750,000 in the bank than owning a $1,000,000 home and no savings. Same net worth of $1,000,000 but surely one is much better than the other. yes yes, you could sell the home and have the cash blah blah blah, but you don't struggle to get a $1,000,000 home just to sell it. your home is always a (necessary) impediment to financial freedom. I’ve never read kiyosaki’s books, maybe I should he seems to stir a wide debate.

I see it like this. Owning a home is a liability…the home itself is an asset.

BTW…why do we include homes in net worth calculations? I would be much happier(and financial secure) with a $250,000 home and $750,000 in the bank than owning a $1,000,000 home and no savings. Same net worth of $1,000,000 but surely one is much better than the other. yes yes, you could sell the home and have the cash blah blah blah, but you don’t struggle to get a $1,000,000 home just to sell it. your home is always a (necessary) impediment to financial freedom.

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