Started keeping track of expenses Jan 1st. Not sure how to tally mortgage. Some is paid by roommate, the rest is paid by me. A portion of the payment goes to equity. My quesiton is, should I only count the portion I pay to taxes and insurance as housing expense? I'm thinking that money paid into equity might not be counted as an expense.
This may appear to be a stupid question: I'm trying to see where I stand, budget-wise, so I can set some goals.
thanks
calculating Housing cost
I think that's really up to you. There would be taxes, insurance and interest which are definitely expenses.
One perspective would be that you're basically shuffling the equity between an investment account and a 'house' account.
The other perspective would be that even the principal portion is an expense because you can't simply reduce it.
So part of your question really comes down to how you look at expenses, or why you're tracking them. Typically this is to study the cost of living and reduce where you can - not to make a decision like renting vs owning, etc, where equity payments would be more important.
I would treat the entire mortgage as an expense, but if you pay more than the minimum, directly on equity, not include that as an expense since it's optional and a true transfer into the 'house account'.
One perspective would be that you're basically shuffling the equity between an investment account and a 'house' account.
The other perspective would be that even the principal portion is an expense because you can't simply reduce it.
So part of your question really comes down to how you look at expenses, or why you're tracking them. Typically this is to study the cost of living and reduce where you can - not to make a decision like renting vs owning, etc, where equity payments would be more important.
I would treat the entire mortgage as an expense, but if you pay more than the minimum, directly on equity, not include that as an expense since it's optional and a true transfer into the 'house account'.
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Dream of Freedom
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BeyondtheWrap
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A lot of people here go by the rule that interest payments are considered "spending" (because it's an unnecessary expense that takes away from savings and ultimately has no benefit) and the principal portion is "savings" (because that money is "invested" such that it provides a return of whatever you save by not paying rent).
Personally, for my student loans, I count the mandatory payments as "spending" (because it comes out of my budget) while I count additional payments as "savings" (because I feel good about paying those loans down).
Personally, for my student loans, I count the mandatory payments as "spending" (because it comes out of my budget) while I count additional payments as "savings" (because I feel good about paying those loans down).
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squashroll
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Thanks for the input guys. trying to sort the numbers from my first full month of tracking expenses. Only stuck on this housing thing. Count roommate's rent as income? disregard it totally? count half the taxes and insurance, count them all... argh.
I know its a numbers game but I want an accurate budget so I can move forward w/ planning. I remember that Jacob only counts 1/2 the auto expenses cause he splits w/DW. I wonder if I should do the same here?
I know its a numbers game but I want an accurate budget so I can move forward w/ planning. I remember that Jacob only counts 1/2 the auto expenses cause he splits w/DW. I wonder if I should do the same here?
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Dream of Freedom
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squashroll
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Dream of Freedom
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Well, if it is your house and you get the proceeds from selling it, then it is income. It comes onto your balance-sheet eventually. If you don't receive any gain other than the "synergy" of only needing one kitchen etc, then you aren't profiting directly. It isn't income. Her share is her problem on her budget. When you say you want an accurate budget you mean one that reflects reality, right. So model it as closely to reality as possible.
I would model her payment to you as income.
I would model your payments of taxes and interest and insurance as expenses. Repair or remodel expenses are expenses too.
I would model the part of your mortgage payment that goes to principal as paying-off of a debt, but please realize that it is not optional. If you don't pay up, your house will be sold.
If you want to calculate your net worth, the value of your house goes on the assets side and your mortgage goes on the debts side. You have to accept that the (estimated!) value of your house can go up and down and thus your net worth will go up and down with it. And you have to realize that your house is an asset, but that it is difficult to get money out of it. Your money is kind of stuck in there, unless you sell or get a house equity loan (which I wouldn't recommend).
I would model your payments of taxes and interest and insurance as expenses. Repair or remodel expenses are expenses too.
I would model the part of your mortgage payment that goes to principal as paying-off of a debt, but please realize that it is not optional. If you don't pay up, your house will be sold.
If you want to calculate your net worth, the value of your house goes on the assets side and your mortgage goes on the debts side. You have to accept that the (estimated!) value of your house can go up and down and thus your net worth will go up and down with it. And you have to realize that your house is an asset, but that it is difficult to get money out of it. Your money is kind of stuck in there, unless you sell or get a house equity loan (which I wouldn't recommend).
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RealPerson
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I am no CPA, but I think there are 2 ways of looking at this. If you want to know your cash flow to make sure you are able to pay your bills, then all your cash layouts are expenses. Money flowing in ends up on the cash inflow side. The difference simply shows how likely you are to be able to pay your bills.
If you are thinking more along the lines of what your assets are, you need a P&L or a balance sheet. There, your mortgage principal would be listed as a long term liability, principal payments are entered as a reduction of the liability, your interest and tax payments are listed as expenses. Your house would be listed under its actual market value as a fixed asset (subject to change due to market conditions). The rent paid by your roommate would be listed as rental income. If you apply her rent payment to an additional payment on the principal of the mortgage, that transaction would be reflected in an additional reduction of the long term liability.
A software like Quickbooks would allow you to generate all these reports automatically, but that may be a little much for keeping FI/ERE score. You could set up a spreadsheet to do something similar.
If you are thinking more along the lines of what your assets are, you need a P&L or a balance sheet. There, your mortgage principal would be listed as a long term liability, principal payments are entered as a reduction of the liability, your interest and tax payments are listed as expenses. Your house would be listed under its actual market value as a fixed asset (subject to change due to market conditions). The rent paid by your roommate would be listed as rental income. If you apply her rent payment to an additional payment on the principal of the mortgage, that transaction would be reflected in an additional reduction of the long term liability.
A software like Quickbooks would allow you to generate all these reports automatically, but that may be a little much for keeping FI/ERE score. You could set up a spreadsheet to do something similar.