Cars: Expense or Asset?

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities
sunny_socal
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Cars: Expense or Asset?

Postby sunny_socal » Fri May 12, 2017 4:28 pm

We have many car threads:
- Should I replace this car?
- Should I buy a NEW car?
- Should I buy a luxury car?
- How to shop for a car?

The responses seem to come from one of two perspectives:
1. The car is an expense (like rent, mortgage, utility bill...)
2. The car is a depreciating asset. (So don't dump money into it!)

I used to belong squarely in the second camp and I've always thought leasing is crazy (and for me it is, but I can see that for many people it could be a good deal.) Recently I've started to rethink my position.

Car as an expense
- Here in the USA a car is pretty much required. In my city it's definitely required, it would take 2-3 hours each way for my commute.
- You're paying for insurance, maintenance and gas no matter what
- The value of the car doesn't matter much, it's just transportation
- Newer cars cost more to acquire but maintenance is less

Car as an asset
- If you buy the car, it's worth something and can be sold if necessary
- The decision to buy new vs used has huge implications on how much value remains
- The ownership period also affects the value of the car. After 10 years any car is close to rock bottom, after 15 years it's definitely there.

I drive about 25k miles/year so I still think leasing isn't right for me although there are seemingly great deals out there. So while I always still think of buying a car, I'm now thinking over a 10-year period and cost per year. Ultimately then the car is still an expense because I'm left with nothing except the memories when I'm done with it.

Which view is more accurate?

bloom2708
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Re: Cars: Expense or Asset?

Postby bloom2708 » Fri May 12, 2017 4:42 pm

A car is both. When you buy you pay fees, taxes, insurance, take a depreciation hit. Those are expenses.

The car itself is an asset. A quickly depreciating asset. Along the way, you have more expenses. Repairs, maintenance, more insurance, gas.

Most also have a liability to go with the asset. The loan. The car may or may not stay ahead of the loan balance.
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ralph124cf
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Re: Cars: Expense or Asset?

Postby ralph124cf » Fri May 12, 2017 4:46 pm

The expense is transportation, not the car. This is true whether you buy or lease the car. If you lease the car transportation is still the expense, and the lease payment is a part of that expense.

The purchased car is a depreciating asset, which you expect to go to zero before you get rid of it. Each years depreciation should be figured as part of that years transportation expense.

Ralph

taguscove
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Re: Cars: Expense or Asset?

Postby taguscove » Fri May 12, 2017 4:47 pm

A passenger vehicle is an asset. The depreciation is the largest contributor to vehicle operating expenses.

The question you're asking is essentially an accounting debate. Do you think in terms of GAAP income statement earnings, GAAP cash flow, or some sort of Pro-forma accounting. There's no right answer.

The Wizard
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Re: Cars: Expense or Asset?

Postby The Wizard » Fri May 12, 2017 6:25 pm

taguscove wrote:A passenger vehicle is an asset. The depreciation is the largest contributor to vehicle operating expenses.

The question you're asking is essentially an accounting debate. Do you think in terms of GAAP income statement earnings, GAAP cash flow, or some sort of Pro-forma accounting. There's no right answer.

For purely business use, like a FedEx truck, what you say is right.
For personal use is it not.
For personal use, driving 250,000 miles in the 10-12 years you own the car is the biggest expense. After that point, many cars are worn out and best donated to charity...
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IMO
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Re: Cars: Expense or Asset?

Postby IMO » Fri May 12, 2017 6:41 pm

It's technically an asset, but in a practical sense on a personal level, it's likely considered an expense by most people when it comes to something like your budget. If one uses their car in their net worth, that's fine, but not really sure what practical real life value that has in most situations(perhaps in splitting up assests for a pending divorce). There can be exceptions, for example, a collector's car (Jay Len's car collection is a huge assest). And it can become a liability, for example, you bought too much car for your budget/income and you are upside down in the loan.

But for most people it serves a specific function and with use it is expected to lose essentially all of it's practical value (I don't trading a car in really changes that thought).

Really similar to things like clothes.

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Phineas J. Whoopee
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Re: Cars: Expense or Asset?

Postby Phineas J. Whoopee » Fri May 12, 2017 8:28 pm

Not only do I agree it's an accounting distinction, I'd say it's not a well-formulated one.

The opposite of an expense is income. The opposite of an asset is a liability.

Can a car one owns be a liability? Can a car one owns be income? One must make up their mind.

A car one owns is an asset, which brings potential liabilities for some of which we buy insurance, which is an expense. If one is in the transportation-for-hire business a car can be a tool to generate income, but is not itself income any more than a wrench or a band saw.

Agreeing with an earlier poster, transportation is an expense. If the expense can be reduced, or the transportation need be better met, via the ownership of an asset, a vehicle, then great. Do that.

But let's not get a balance sheet, showing assets and liabilities at a specific point in time, mixed up with a cash flow statement, showing inflows and outflows over a period of time. It's comparing apples to a skeptical approach toward UFO sightings.

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retire57
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Re: Cars: Expense or Asset?

Postby retire57 » Fri May 12, 2017 8:50 pm

Technically an asset. We update the value each January to reflect depreciation.

MindBogler
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Re: Cars: Expense or Asset?

Postby MindBogler » Fri May 12, 2017 9:27 pm

I've always felt adding your car to your net worth was engaging in mental gymnastics. Do you add the value of all the furniture in your home? What about TVs? How about that old 2 channel stereo receiver? All of these things are depreciating assets. Just because the car is the largest ticket item at the start of its useful life doesn't indicate it should get a special place on the list.

6bquick
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Re: Cars: Expense or Asset?

Postby 6bquick » Fri May 12, 2017 9:46 pm

While he's no hero of mine, I like Robert Kiyosaki's take on asset/liability. Super simple. If it makes you money, it's an asset. if it costs you money, it's a liability. So, according to that, both your car, (save maybe uber drivers) and your primary residence are liabilities, not assets. as Mr. Whoopee mentioned, it can be more complex in real life, but i've found this an easy way to explain things to people.

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Phineas J. Whoopee
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Re: Cars: Expense or Asset?

Postby Phineas J. Whoopee » Fri May 12, 2017 9:53 pm

6bquick wrote:While he's no hero of mine, I like Robert Kiyosaki's take on asset/liability. Super simple. If it makes you money, it's an asset. if it costs you money, it's a liability. So, according to that, both your car, (save maybe uber drivers) and your primary residence are liabilities, not assets. as Mr. Whoopee mentioned, it can be more complex in real life, but i've found this an easy way to explain things to people.

Mr. Kiyosaki can make up anything he likes in his works of fiction, but cash flow is not the same as asset, and value goes beyond physical currency.

He sells fantasy novels. That's all he does. One bases one's decisions on the Hogwarts curriculum at one's own financial peril.

PJW

6bquick
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Re: Cars: Expense or Asset?

Postby 6bquick » Fri May 12, 2017 10:02 pm

I started my answer with my feeling towards kiyosaki. no need to prove anything to me. I realize it's not an infallible sentiment, but it does do a good job, IMO, of illustrating what is and isn't an "asset". That word is used far to loosely by most. a $10k Civic and $10k of vtsax are not the same.

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Phineas J. Whoopee
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Re: Cars: Expense or Asset?

Postby Phineas J. Whoopee » Fri May 12, 2017 10:13 pm

6bquick wrote:I started my answer with my feeling towards kiyosaki. no need to prove anything to me. I realize it's not an infallible sentiment, but it does do a good job, IMO, of illustrating what is and isn't an "asset". That word is used far to loosely by most. a $10k Civic and $10k of vtsax are not the same.

It's Kiyosaki who uses the term so loosely it loses all meaning.

$10,000 is exactly the same as $10,000. You're using money in its unit of account sense. Granted, its third function is widely misunderstood.

I'm not proving anything to you. I'm attempting to prevent lurkers who come across this thread later from being misled, and not intentionally by you. I accuse you of nothing. I only point out Mr. Kiyosaki never did what he suggests we do, and that he made his fortune selling fantasy books.

I hear publishing fiction can be a profitable business.

PJW

6bquick
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Re: Cars: Expense or Asset?

Postby 6bquick » Fri May 12, 2017 10:47 pm

Point taken, and you're right, i was using money in it's unit of account sense. This next question, honest to God, isn't just intentionally poking the proverbial bear. But I have to wonder, had I not directly attributed that statement to the aforementioned huckster, would i have elicited the same level of response?

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celia
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Re: Cars: Expense or Asset?

Postby celia » Sat May 13, 2017 2:04 am

You could say the same thing about a house. It is both an on-going expense as well as an asset. However, the house has the potential to be worth a lot more in the future whereas a car will usually be worth less.

For me, the biggest difference between the two is that the car is also a LIABILITY, much more so than a house. It can be in an accident and you can lose not only the car's value but also incur injuries/losses that are more than what your insurance(s) will cover.

czr
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Re: Cars: Expense or Asset?

Postby czr » Sat May 13, 2017 2:16 am

Accountants unite! It's an asset and expense. Many bogleheads buy their cars with cash so let's say they buy that civic new for $25k with no loan. It's got cash value just not super liquid. If you have a loan, it's an asset coupled with a liability. It's my fourth biggest hard asset after cash/Vanguard accounts/house and worth something even wholesale price which I track and peg the value at on my balance sheet. It's also a line item expense in my personal monthly budgeting statement for car expense (insurance, gas, maintenance, repairs).

czr
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Re: Cars: Expense or Asset?

Postby czr » Sat May 13, 2017 2:20 am

celia wrote:For me, the biggest difference between the two is that the car is also a LIABILITY, much more so than a house. It can be in an accident and you can lose not only the car's value but also incur injuries/losses that are more than what your insurance(s) will cover.


I get what you're saying but someone can injure themselves on your property and it's the same logic although more unlikely. The liability of the home is the mortgage tied to the property. The liability of the car should be only the loan.

daveydoo
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Re: Cars: Expense or Asset?

Postby daveydoo » Sat May 13, 2017 2:24 am

sunny_socal wrote:
Which view is more accurate?


If you don't have much money, it's an "asset." Just like your flat-screen and your blender :D . If you feel compelled to include it as a line item on your net-worth spread sheet, you have too much car, imo.

ralph124cf
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Re: Cars: Expense or Asset?

Postby ralph124cf » Sat May 13, 2017 5:08 am

The question "Expense or Asset" is essentially meaningless. Accounting wise, Assets and Liabilities are tracked on the Balance Sheet, while Income and Expense are tracked on the Income Statement.

Apples and oranges.

A car is neither income nor expense. A car loan payment is neither income or expense, it is a capital transaction, affecting the Balance Sheet but not the Income Statement (OK, simplification, the interest component should be considered a part of the Income Statement, but the majority of the loan is repayment of principal. In any case the interest would not be part of transportation expense, but of interest expense.)

The expense is transportation, and the depreciation on the car should be the expense item, not the car payment, which is a capital transaction.

On a Balance Sheet, when you buy a car you exchange one asset (cash) for another asset (car) of equal value. Accounting wise, nothing has changed in your financial status. If you instead finance 100% of the price, then your assets will go up by the price of the car, and your liabilities (loan) will also go up by the price of the car. As the car ages and accumulates miles, you should recognize depreciation on both your Balance Sheet and your Income Statement. This will give you the clearest possible picture of your financial position.

Ralph

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JoMoney
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Re: Cars: Expense or Asset?

Postby JoMoney » Sat May 13, 2017 5:20 am

czr wrote:... The liability of the home is the mortgage tied to the property. The liability of the car should be only the loan.

Funny... a bank would account for the loan on property as an asset, but it would be a liability if they had to reposes and take ownership of it.
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corn18
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Re: Cars: Expense or Asset?

Postby corn18 » Sat May 13, 2017 5:36 am

I don't know much about the accounting bits, but I do know I do not like it every year when I update my net worth and it goes down when I put in the new value of my cars. My expensive watches might seem like a stupid luxury to most, but when I put in their value each year, at least they stay about the same. And I don't have to budget $1500 a year to maintain them. And they don't need gas.

harvestbook
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Re: Cars: Expense or Asset?

Postby harvestbook » Sat May 13, 2017 6:39 am

I don't account cars either way. I see them as a necessary evil where my goal is to reduce the total cost-per-mile I pay over a lifetime. I've never sold a car. I have always bought cars with high mileage and got the last five years out of them and get my cost down below ten cents a mile (not counting insurance). Only recently did I buy my first new car, with the plan of keeping it through 250K miles.

Same with a house. I consider it a liability that I have to have if I am ever going to build any real assets. Even if i sold the car or the house, I'd have to buy another (or lease or rent.) So my goal is to reduce the expense of living so I can save more.

Maybe this philosophy makes no sense to an accountant, but it works in my life, which is all that matters to me.

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Kenkat
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Re: Cars: Expense or Asset?

Postby Kenkat » Sat May 13, 2017 7:51 am

It's both. It is an asset that then depreciates, resulting in a depreciation expense every year in addition to on-going expenses to operating the asset every year.

ImUrHuckleberry
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Re: Cars: Expense or Asset?

Postby ImUrHuckleberry » Sat May 13, 2017 7:57 am

MindBogler wrote:I've always felt adding your car to your net worth was engaging in mental gymnastics. Do you add the value of all the furniture in your home? What about TVs? How about that old 2 channel stereo receiver? All of these things are depreciating assets. Just because the car is the largest ticket item at the start of its useful life doesn't indicate it should get a special place on the list.


What about your actual home?

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midareff
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Re: Cars: Expense or Asset?

Postby midareff » Sat May 13, 2017 8:01 am

sunny_socal wrote:We have many car threads:
- Should I replace this car?
- Should I buy a NEW car?
- Should I buy a luxury car?
- How to shop for a car?

The responses seem to come from one of two perspectives:
1. The car is an expense (like rent, mortgage, utility bill...)
2. The car is a depreciating asset. (So don't dump money into it!)

Which view is more accurate?


While I edited your post to keep the length down I think you missed a category....... what happened to a car as an adult toy? I ask that since that is definitely what my next car will be.

stan1
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Re: Cars: Expense or Asset?

Postby stan1 » Sat May 13, 2017 8:17 am

Agree this is mental gymnastics and irrelevant to long term financial planning unless you are about to declare bankruptcy or die. If you want to treat your car as an asset to make your net worth look bigger or want an "accurate" net worth valuation you are only fooling yourself.

Is furniture an asset? You can sell furniture for about 90% less than you paid for it the day after you bring it home. How about bath towels? You can put them out at a garage sale or donate to a thrift store and get a buck or two back.

bloom2708
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Re: Cars: Expense or Asset?

Postby bloom2708 » Sat May 13, 2017 8:28 am

People sell cars, furniture, electronics all the time (see Craigslist, eBay, classifieds in newspapers).

Your car is an asset. Value it conservatively at somewhere between Trade-In and Private Party. Make deductions for known issues.

Anything that can be sold and potentially return cash money is an asset.
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bottlecap
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Re: Cars: Expense or Asset?

Postby bottlecap » Sat May 13, 2017 9:20 am

It is like every other durable good you own.

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Ged
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Re: Cars: Expense or Asset?

Postby Ged » Sat May 13, 2017 9:37 am

It is an asset, like many such it has costs to maintain and operate.

Since I never sell my cars - I drive them until they have negligible value I don't treat them as assets in my view of my net worth.

If I was a collector and bought and sold cars as a business I certainly would be concerned about their resale value as assets.

bigdav160
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Re: Cars: Expense or Asset?

Postby bigdav160 » Sat May 13, 2017 9:54 am

I buy used cars and let someone else take the depreciation hit. When I do sell, it's usually at break even or at a profit.

If you feel compelled to include it as a line item on your net-worth spread sheet, you have too much car, imo.


I am admitted "car guy". In my six car garage sits $200k in fiberglass and steel

michaeljc70
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Re: Cars: Expense or Asset?

Postby michaeljc70 » Sat May 13, 2017 10:04 am

I don't see much of a difference financially. It is a depreciating asset which means an asset and an expense (the depreciation). I am not sure why it matters as a car is certainly not an investment. I don't know your reasons, but a lot of these type of posts strike me as people who are trying to justify spending more on a car. That is fine if you want to spend more $$$ on a car, but it can't be for financial reasons.

I count the (rough) value of my car as an asset for financial purposes (net worth) if that is what you are getting at.

The Wizard
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Re: Cars: Expense or Asset?

Postby The Wizard » Sat May 13, 2017 11:51 am

bigdav160 wrote:I am admitted "car guy". In my six car garage sits $200k in fiberglass and steel

Three Corvettes?
Nice...
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The Wizard
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Re: Cars: Expense or Asset?

Postby The Wizard » Sat May 13, 2017 12:02 pm

I tend to view the $$ I spent on my vehicles as prepaid transportation, except that we don't have an exact number.
My Mustang is a bit old, so I have maybe 100,000 miles left on it.
But my F150 is newish, so I have over 200,000 miles left on it...
Attempted new signature...

avalpert
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Re: Cars: Expense or Asset?

Postby avalpert » Sat May 13, 2017 12:09 pm

This isn't an either/or situation - a car is both an expense (at least it creates expenses including depreciation) and an asset, just like your house and yes your couch and clothing.

The meaningful question here is what is the most useful way to treat it for personal finance decision making and that can vary based on your approach to your own financial management. Personally, I treat a car purchase as an expense and I loosely track the value of the asset on my personal balance sheet, adjusting it down every now and then based on blue book value. I don't do the same with my couch not because it wouldn't be appropriate but because that level of precision in my personal finances isn't necessary - it just isn't enough value in it to impact my decisions.

nolesrule
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Re: Cars: Expense or Asset?

Postby nolesrule » Sat May 13, 2017 12:12 pm

It's a depreciating asset, but for personal finance reasons I just assume 100% depreciation at the time of purchase, like I do for everything else I own, since I don't expect to get much, if anything, for it at the time I decide to relinquish ownership of it... and any money received will just be used to reduce the out of pocket cost of the next vehicle.

I'll leave it to the executor of my estate to be concerned with my vehicle's real value... although hopefully it won't be the current car that they are concerned with.

michaeljc70
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Re: Cars: Expense or Asset?

Postby michaeljc70 » Sat May 13, 2017 12:16 pm

avalpert wrote:This isn't an either/or situation - a car is both an expense (at least it creates expenses including depreciation) and an asset, just like your house and yes your couch and clothing.

The meaningful question here is what is the most useful way to treat it for personal finance decision making and that can vary based on your approach to your own financial management. Personally, I treat a car purchase as an expense and I loosely track the value of the asset on my personal balance sheet, adjusting it down every now and then based on blue book value. I don't do the same with my couch not because it wouldn't be appropriate but because that level of precision in my personal finances isn't necessary - it just isn't enough value in it to impact my decisions.


I do something similar. I depreciate it (entirely automated in Quicken) over 7 years. It doesn't matter really in terms of net worth as it is a small asset, but I do it because then the expense is spread over 7 years rather than having a big expense one year and none for 7 years (or whatever).

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Re: Cars: Expense or Asset?

Postby MindBogler » Sat May 13, 2017 5:29 pm

ImUrHuckleberry wrote:
MindBogler wrote:I've always felt adding your car to your net worth was engaging in mental gymnastics. Do you add the value of all the furniture in your home? What about TVs? How about that old 2 channel stereo receiver? All of these things are depreciating assets. Just because the car is the largest ticket item at the start of its useful life doesn't indicate it should get a special place on the list.


What about your actual home?

I don't consider my home as part of my net worth. When it is paid off, I might think of it differently but probably not. Even paid off homes still generate monthly expenses (taxes, insurance, maintenance). Homes are a cost of living, in my opinion. For the purposes of calculating net worth I only consider liquid investments: emergency funds, stocks, and bonds.

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Re: Cars: Expense or Asset?

Postby michaeljc70 » Sat May 13, 2017 5:45 pm

MindBogler wrote:
ImUrHuckleberry wrote:
MindBogler wrote:I've always felt adding your car to your net worth was engaging in mental gymnastics. Do you add the value of all the furniture in your home? What about TVs? How about that old 2 channel stereo receiver? All of these things are depreciating assets. Just because the car is the largest ticket item at the start of its useful life doesn't indicate it should get a special place on the list.


What about your actual home?

I don't consider my home as part of my net worth. When it is paid off, I might think of it differently but probably not. Even paid off homes still generate monthly expenses (taxes, insurance, maintenance). Homes are a cost of living, in my opinion. For the purposes of calculating net worth I only consider liquid investments: emergency funds, stocks, and bonds.


I add my home to net worth. Of course it is an asset. Can you sell it and get money for it? Is someone with a net worth of $1M including their home equally well off as someone with a $1M net worth not counting their $300k home? Of course not. Counting it as an investable asset is completely different than it being part of your net worth. If it came down to it and I was desperate, I could sell my home for cash and go rent or reverse mortgage it.

As to other things like a stereo or tv that have no significant value shortly after purchase (or even at full purchase price) relative to my net worth, no, I don't count them as they are insignificant. The auto is relatively insignificant too, but tracked as part of my overall finances.

Coming from an accounting background, I think of it is capitalizing and depreciating larger items and expensing smaller ones.

MindBogler
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Re: Cars: Expense or Asset?

Postby MindBogler » Sat May 13, 2017 7:28 pm

michaeljc70 wrote:I add my home to net worth. Of course it is an asset. Can you sell it and get money for it? Is someone with a net worth of $1M including their home equally well off as someone with a $1M net worth not counting their $300k home? Of course not. Counting it as an investable asset is completely different than it being part of your net worth. If it came down to it and I was desperate, I could sell my home for cash and go rent or reverse mortgage it.

As to other things like a stereo or tv that have no significant value shortly after purchase (or even at full purchase price) relative to my net worth, no, I don't count them as they are insignificant. The auto is relatively insignificant too, but tracked as part of my overall finances.

Coming from an accounting background, I think of it is capitalizing and depreciating larger items and expensing smaller ones.

I can at least understand including a home in one's net worth, I just choose not to do it. Cars though should not be included in one's net worth IMHO. I like a previous example someone used that buying a car was like "prepaying for the cost of transportation." That is how we have always thought about auto purchases. And the longer one holds on to that purchase, the lower the average cost per year becomes.

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Re: Cars: Expense or Asset?

Postby dbr » Sun May 14, 2017 9:06 am

A car is certainly an asset. A car is not an expense but owning and operating a car imposes expenses.

Most people would not bother tracking the asset value of their car as part of financial planning any more than they would track the value of other personal possessions, etc. That does not mean there is any intrinsic reason that prevents tracking the asset value of a car within the same approximations that apply to assigning a value to any marketable property.

I have a relative who once had a "collector" car stolen and had to pay capital gains tax on the fact that the insurance settlement was for more than the original cost to buy the car -- at least that is the legend.

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Re: Cars: Expense or Asset?

Postby EnjoyIt » Sun May 14, 2017 9:37 am

I don't fully understand the purpose of this exercise. Does it really matter?

Unless you have a classic car, that car probably shouldn't be in your net worth calculation as it dubiously inflates it.

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Re: Cars: Expense or Asset?

Postby michaeljc70 » Sun May 14, 2017 9:40 am

EnjoyIt wrote:I don't fully understand the purpose of this exercise. Does it really matter?

Unless you have a classic car, that car probably shouldn't be in your net worth calculation as it dubiously inflates it.


How does a car at market value (what you can sell it for) inflate your net worth?

ImUrHuckleberry
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Re: Cars: Expense or Asset?

Postby ImUrHuckleberry » Sun May 14, 2017 9:44 am

I think we can sum this up with it being a personal choice. For me I include cars and house in net worth but not other possessions. Mostly because these are the high dollar value items that we own. To include other possessions would take too much effort, and most of them can't be converted to cash with as much certainty as houses and cars imo.

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knpstr
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Re: Cars: Expense or Asset?

Postby knpstr » Sun May 14, 2017 10:03 am

MindBogler wrote:
ImUrHuckleberry wrote:
MindBogler wrote:I've always felt adding your car to your net worth was engaging in mental gymnastics. Do you add the value of all the furniture in your home? What about TVs? How about that old 2 channel stereo receiver? All of these things are depreciating assets. Just because the car is the largest ticket item at the start of its useful life doesn't indicate it should get a special place on the list.


What about your actual home?

I don't consider my home as part of my net worth. When it is paid off, I might think of it differently but probably not. Even paid off homes still generate monthly expenses (taxes, insurance, maintenance). Homes are a cost of living, in my opinion. For the purposes of calculating net worth I only consider liquid investments: emergency funds, stocks, and bonds.


Homes quite reliably, though not guaranteed, appreciate in value. Here in the midwest for example, you can get homes that with assuming 3% appreciation per year, that amount of appreciation more than covers all expenses (insurance, property tax, utilities, maintenance). So your net worth can still go up even after accounting for all expenses on a modest appreciation rate. Of course the asset is cash flow negative, even if it perhaps is net worth positive.

Additional Note:
I think there is some value to Kiyosaki's definitions/idea. Of course he makes a new definition of what it is for something to be an asset or liability and that ruffles a lot of feathers, but his point is the same, even if he used the terms snorkels instead of assets and giraffes instead of liabilities.

He says you should want to collect snorkels (things that are cash flow positive) not giraffes (things that are cash flow negative) in your life. In doing so, this can lead to financial security or independence. This may seem like obvious enough advice, but many people never give it a thought.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

michaeljc70
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Re: Cars: Expense or Asset?

Postby michaeljc70 » Sun May 14, 2017 10:09 am

An asset is an asset. It has nothing to do whether it goes up or down in value or has expenses associated with it. My mutual funds have expenses associated with them. So I should not count them in my net worth? From a practical standpoint, it is most likely not worth tracking low cost items (relative to net worth) and may not be worth including depreciating items like a car if you don't have an easy/automated way of doing so.

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Re: Cars: Expense or Asset?

Postby Jack FFR1846 » Sun May 14, 2017 10:27 am

Over its life from purchase to sale, it's an expense.

Being a car guy who has lots of car guy friends, I often see rationalizations that the car is appreciating in value so it isn't an expense, to which I respond:

Did you spend money on gas, oil, insurance, tires, rebuilding that engine, sales tax when you bought it, title, registration and inspection fees, exise or property tax, the light bulb that burned out, brake pads, diff and transmission fluid, brake fluid, anti-freeze?

These questions are mostly directed to "toy" cars that are not everyday transportation. Sure, the toy car can act as an everyday car in emergencies when the primary car is being worked on for an extended period of time.

I can cite a couple examples. My brother in-law has a 69 Chevelle SS that he's had in his garage since about 1978, when the engine needed to be removed to be rebuilt. He calls it his retirement account. But of course, the peak in value for these cars ended with the 80's and as a 90k mile car, it isn't the Barrett-Jackson example that brings $60k on the block. His insurance cost for it sitting is about $100 a year. There's about $4k right there. Storage costs money, even when it's in your own garage. In its current condition, it might bring that $4k, but not much more (there is rust and dents and of course the engine still needs to be rebuilt). Not much of a retirement account.

My case is somewhat different and since I've already sold, I can do the accounting. I bought the 2007 Lotus Elise used. I used it for 4 years and spent about $4k for parts, gas, oil, repair costs and replacements. I sold it for $2k more than I paid for it. Insurance was about $3k. Taxes about $2500. For a car guy, the focus would be on the $2k profit from buying to selling. To me, I remember the other expenses and winter-long projects to complete the repairs. So this was an expense for me. And yes, for a summer, it was my emergency back up when we didn't have another car for my son to use to get to his summer job.
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Pajamas
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Re: Cars: Expense or Asset?

Postby Pajamas » Sun May 14, 2017 10:29 am

sunny_socal wrote:- Here in the USA a car is pretty much required.


This is not true at all. It depends completely on where you live. There are many places where cars are not only not required but actually are a negative, even apart from monetary considerations. You can easily choose to live some place where cars are not needed.

Even in many places where you might think a car is required, there are plenty of people who still don't have cars, whether through choice or not. There are people can't afford a car, some people can't drive one because of disability or legal restrictions such as a history of DUI, and some people still choose not to have one even though they could have one if they chose to. Services such as Uber and Lyft have decreased the need to own a car, but there have always been buses, taxis, and in places without public transportation or taxis, people who provide informal taxi service for cash.

Other nations have a much lower rate of car ownership than the U.S. Canada, which is probably most similar to the U.S., has a significantly lower rate of car ownership.

https://en.wikipedia.org/wiki/List_of_c ... per_capita

Even in the U.S., car ownership varies greatly by state, which is still a broad measure. For instance, Montana has three times the number of cars per capita compared to D.C. and New York State.

https://en.wikipedia.org/wiki/List_of_U ... per_capita

Cars have a lot of negative consequences to the planet and to our society and the idea that a car is required shouldn't simply be accepted without question.

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Re: Cars: Expense or Asset?

Postby avalpert » Sun May 14, 2017 11:18 am

EnjoyIt wrote:I don't fully understand the purpose of this exercise. Does it really matter?

Unless you have a classic car, that car probably shouldn't be in your net worth calculation as it dubiously inflates it.

On the contrary, taking the cash outlay for the purchase and not recognizing that you have an asset that will be used over the next decade+ dubiously deflates your net worth.

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Re: Cars: Expense or Asset?

Postby Kenkat » Sun May 14, 2017 11:30 am

michaeljc70 wrote:An asset is an asset. It has nothing to do whether it goes up or down in value or has expenses associated with it. My mutual funds have expenses associated with them. So I should not count them in my net worth? From a practical standpoint, it is most likely not worth tracking low cost items (relative to net worth) and may not be worth including depreciating items like a car if you don't have an easy/automated way of doing so.


+1.

I guess it is the accounting background in me, but choosing to call it anything else is in opposition to general accounting definitions. I guess you can call it whatever you like, but from a business standpoint, for anything that has value for more than a relatively short period (a year is somewhat typical), businesses will capitalize that as an asset and then expense depreciation every year for some defined period of time. There may be ongoing expenses to operating that asset which are "expensed" every year as well. At some point, the asset is fully depreciated and while the business can continue to use it, all depreciation is "used up" and can no longer be expensed.

That's how I think about cars. They have value so from an accounting standpoint, they are an asset. That asset is expensed over time until it is basically worthless or you sell it for some amount of money. If you don't include it in your net worth, that's fine, your choice, but it doesn't change what it is.

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Re: Cars: Expense or Asset?

Postby MindBogler » Sun May 14, 2017 12:26 pm

Pajamas wrote: You can easily choose to live some place where cars are not needed.

While moving is possible, calling it easy is ignorant of most people's reality.


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