What to you mean by Living Expenses?

[CM]

jfoxcpacfp wrote:

CM wrote:

jfoxcpacfp wrote:

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

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Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

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Not sure I understand, Johanna. The corresponding asset is human capital, the education financed by the debt, correct? Maybe we should amortize that on our personal balance sheets, but as long as a license is in good standing it’s (the education’s) economic value is intact.

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I’m taking the comment for what it is, using the traditional definition of net worth, which is assets – liabilities = net worth. Human capital doesn’t have a definite numerical value. If you’re wanting to add that to your personal balance sheet, go ahead, but the value is totally subjective.

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[CM]

CM wrote:

jfoxcpacfp wrote:

CM wrote:

jfoxcpacfp wrote:

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

Click to expand…

Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

Click to expand…

Not sure I understand, Johanna. The corresponding asset is human capital, the education financed by the debt, correct? Maybe we should amortize that on our personal balance sheets, but as long as a license is in good standing it’s (the education’s) economic value is intact.

Click to expand…

I’m taking the comment for what it is, using the traditional definition of net worth, which is assets – liabilities = net worth. Human capital doesn’t have a definite numerical value. If you’re wanting to add that to your personal balance sheet, go ahead, but the value is totally subjective.

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What asset is being reduced when a student loan payment is made?

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Never mind. Cash.

[Zaphod]

jfoxcpacfp wrote:

CM wrote:

jfoxcpacfp wrote:

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

Click to expand…

Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

Click to expand…

Not sure I understand, Johanna. The corresponding asset is human capital, the education financed by the debt, correct? Maybe we should amortize that on our personal balance sheets, but as long as a license is in good standing it’s (the education’s) economic value is intact.

Click to expand…

I’m taking the comment for what it is, using the traditional definition of net worth, which is assets – liabilities = net worth. Human capital doesn’t have a definite numerical value. If you’re wanting to add that to your personal balance sheet, go ahead, but the value is totally subjective.

Click to expand...

What part is the asset then I believe is the question (and mine)? I think the issue is here, and dont mean to assume anyones position, but since its what I assumed I'll guess more people also think so.

If you are reducing a debt, aka, liability how does that not increase your net worth? Yes, you said the asset side reducing at same time, which makes math sense, but I think the docs in the forum arent understanding what that part is (i know I dont)?

Never mind, CM has solved it. I knew it was something obivous

[Donnie]

I think JFox means that you are taking an asset (cash) and paying down a liability (debt) resulting in no net change to net worth.  While true, I think the point that was being made is that the monthly debt payment includes debt pay down as well as interest, so it is not quite right to think of the full payment as an expense since it partially pays down debt.

I think of expenses as anything that is not savings.  Spending would include insurance payments, mortgage payments, and student loan payments.  If you want to back out your principal payments from your mortgage and student debt as saving rather than spending, that would be ok in my view.  I include my full debt payments in expenses since I want to know how much money I have left to contribute to retirement accounts and other savings in excess of debt pay down.

I would not think of retirement contributions as a "fixed" expense.  It is the very definition of a variable item because you can stop making that payment if you need to.  Rent/mortgage, food, insurance, utilities, etc. are true fixed expenses since you cannot stop paying these bills without facing serious immediate consequences.  Vacations, restaurants, luxury goods, etc. are typical types of variable expenses.  I would keep it simple and think of retirement as savings.

 

[CM]

Zaphod wrote:

jfoxcpacfp wrote:

CM wrote:

jfoxcpacfp wrote:

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

Click to expand…

Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

Click to expand…

Not sure I understand, Johanna. The corresponding asset is human capital, the education financed by the debt, correct? Maybe we should amortize that on our personal balance sheets, but as long as a license is in good standing it’s (the education’s) economic value is intact.

Click to expand…

I’m taking the comment for what it is, using the traditional definition of net worth, which is assets – liabilities = net worth. Human capital doesn’t have a definite numerical value. If you’re wanting to add that to your personal balance sheet, go ahead, but the value is totally subjective.

Click to expand…

What part is the asset then I believe is the question (and mine)? I think the issue is here, and dont mean to assume anyones position, but since its what I assumed I’ll guess more people also think so.

If you are reducing a debt, aka, liability how does that not increase your net worth? Yes, you said the asset side reducing at same time, which makes math sense, but I think the docs in the forum arent understanding what that part is (i know I dont)?

Never mind, CM has solved it. I knew it was something obivous

Click to expand...

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[Zaphod]

CM wrote:

Zaphod wrote:

jfoxcpacfp wrote:

CM wrote:

jfoxcpacfp wrote:

ifonlyFI wrote:

Also, keep track of your net worth. You will see that with each student loan payment, you are increasing net worth. Watching this increase is a better positive mindset.

Click to expand…

Actually, a payment on student loan debt does not increase net worth. I apologize for being ticky but you are reducing an asset and a liability at the same time and the net effect is zero. The future effect, however, will be positive as the OP will no longer have the added interest expense related to the debt.

Click to expand…

Not sure I understand, Johanna. The corresponding asset is human capital, the education financed by the debt, correct? Maybe we should amortize that on our personal balance sheets, but as long as a license is in good standing it’s (the education’s) economic value is intact.

Click to expand…

I’m taking the comment for what it is, using the traditional definition of net worth, which is assets – liabilities = net worth. Human capital doesn’t have a definite numerical value. If you’re wanting to add that to your personal balance sheet, go ahead, but the value is totally subjective.

Click to expand…

What part is the asset then I believe is the question (and mine)? I think the issue is here, and dont mean to assume anyones position, but since its what I assumed I’ll guess more people also think so.

If you are reducing a debt, aka, liability how does that not increase your net worth? Yes, you said the asset side reducing at same time, which makes math sense, but I think the docs in the forum arent understanding what that part is (i know I dont)?

Never mind, CM has solved it. I knew it was something obivous

Click to expand…

From an accounting perspective, your net worth increases with each cash inflow, e.g., each paycheck. New cash is sitting in assets. That increases net worth.

If you spend that cash to reduce a liability (e.g., student debt), then assets and liabilities decrease equally and net worth doesn’t then change. (The increase occurred earlier when the paycheck arrived.)

 

Your personal balance sheet includes your human capital. The student debt was incurred to obtain a valuable asset; a medical education/license to practice medicine. If you were a corporation that would be listed among the intangible assets on your balance sheet, and it would stay there unless/until it was impaired.

The value of the education is not affected by accelerated student debt payments (but neither is net worth).

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Yes, it all made sense with your post, a forehead slapper. Funny since this obvious effect is why I choose to invest into taxable rather than to aggressively tackle my loans...so you would think it occurred to me.

[wideopenspaces]

I just have 3 categories: taxes, spending and saving. The savings includes retirement and extra mortgage payments ( and if I still had student loans, the extra payments on those loans). I like to keep it simple. It sounds like you have a lot of debt and in your situation I would not have bought a house and rented more cheaply but what's done is done. You are making reasonably aggressive progress towards debt repayment. Hopefully you are able to put some money towards retirement as well ( can't remember what you posted about that). Anyway, it sounds like you are going to be just fine but are struggling psychologically with the debt load. I agree with tracking your net worth, it'll make you feel better about the progress you are making each year.

[StarTrekDoc]

Home Mortgage -- I wouldn't dismiss the home ownership as some traditional hardline here.  It's a very valuable highly subsidized loan that pays off in shades in HCOL/moderate appreciation areas where one knows the horizon is 3+ years.   Does it add additional stress? Absolutely.  As does a medical education and the loans attached to them -- however, we still did it.

OP's debt is manageable and moving it along with a good time horizon.  Break even at 10 years is fine.  To look at 1/2 full -- look at the horizon at 20 and 30 years with anticipated continued home appreciation and accumulation.    Change that handle OP --you're in debt, but the plan looks solid.

 

[Re3iRtH]

My question to you is: what possessed you to get and pay for an umbrella insurance policy when you have a negative net worth?

[CM]

Re3iRtH wrote:

My question to you is: what possessed you to get and pay for an umbrella insurance policy when you have a negative net worth?

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One can be sued and lose whether net worth is positive or negative.

An umbrella policy provides lawyers to defend OP, and funds to cover adverse judgments up to the policy limit.

[Re3iRtH]

CM wrote:

Re3iRtH wrote:

My question to you is: what possessed you to get and pay for an umbrella insurance policy when you have a negative net worth?

Click to expand…

One can be sued and lose whether net worth is positive or negative.

An umbrella policy provides lawyers to defend OP, and funds to cover adverse judgments up to the policy limit.

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He has NO ASSETS that any lawyer can go after. I wouldn't even consider an umbrella policy until reaching $1-2M in net worth.

For the same reason, if person A has $1M of properties owned free and clear, and person B has $1M of properties but owes $900K in loans, person A is clearly more compromised and at risk. No litigator would bother spending the time and energy to go after person B if they are sued, because they have NO NET WORTH / no skin in the game to collect. Its simple math.

[CM]

I'm not a lawyer, but I presume that if you lose a judgment you are obliged to pay it.

If you don't have the assets on hand, then you'll have to work it off. Wages can be garnished and any future assets (e.g., inheritance) can be attached. It would take that much longer to accumulate a positive net worth.

[q-school]

how much is this umbrella insurance?   i can't remember exactly but mine is like couple hundred for the year.

unless there is something fancy in there, probably not going to be the difference between making it and not making it.

 

[CM]

q-school wrote:

how much is this umbrella insurance?

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Our $1 million policy is $134/yr.

[CM]

Re3iRtH wrote:

He has NO ASSETS that any lawyer can go after.

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Just did a quick Google search and found this:

http://www.masslegalhelp.org/consumer/debt/court/no-money.

A creditor or debt collector can win a lawsuit against you even if you are penniless. The lawsuit is not based on whether you can pay—it is based on whether you owe the specific debt amount to that particular plaintiff.  Even if you have no money, the court can decide:

1. the creditor has won the lawsuit and


2. you still owe that sum of money to that person or company.

If you lose your case

The judge has already decided that you owe money to the plaintiff.  The judge has not decided how you are going to pay the plaintiff back. The creditor has to follow a second step to collect the money you owe. 

The creditor may have asked for an “execution” at the end of your case. If they get an execution from the judge, they can “levy on the execution.” This means it is legal for them to take your property. They will hire a sheriff or a constable. The sheriff or constable will bring you a copy of the execution and take your car or put a lien on your house.

If the creditor wants you to pay them money, they can take you back to court on a Supplemental Process to “garnish your wages.” They can take money out of your paycheck before you get paid. 

 

and this:

https://www.nolo.com/legal-encyclopedia/dont-sue-unless-you-can-30009.html.

If you win your small court case, you’ll receive a money judgment for the amount you’re owed. If the defendant refuses to pay voluntarily, the money judgment will allow you to use collection techniques like wage garnishments, property liens, and bank account levies to access the following types of property:

• Personal income. An easy way to recover is to take a portion of the defendant’s wages each month. Most states allow a wage garnishment of up to 25%; however, the wages of very low-income workers are exempt from garnishment, and you can’t garnish a welfare, Social Security, unemployment, pension, or disability check.


• Personal assets. You can also withdraw funds from a bank account or levy on property, such as real estate, cars, and stocks and bonds. Or, record your judgment with the recorder’s office. Doing so will put a property lien on the defendant’s real estate, and you’ll be paid once the property gets sold. Be aware that you won’t get everything a defendant owns. Defendants can protect some things they need to work and live (more below).


• Future income or assets. Someone broke now could very likely be solvent in the future (as might be the case with a student). Judgments are collectible for many years, almost indefinitely if you do the paperwork to keep renewing them (more below), and they accrue interest as long as they remain unpaid.

 

A physician can earn millions of dollars over a career. I always presumed that if I was sued and lost I could be compelled to work for my creditor until the debt was paid. Quick search seems to support that idea, but we have some attorneys on the board who might want to weigh in.