Do you include debt payments in your savings %?

[StashthatCash]

Hi guys,
I was just curious if you include your debt repayment in your overall savings percentages?  I am one year out of college so I am aggressively paying back my student loans (over $11,000 paid off in the last 12 months)  Should I be including those payments towards my savings or spending?  Thanks for any feedback

[Cheddar Stacker]

Yes. Some disagree, but I feel debt principal payments are "savings" since they increase your net worth.

[uspsfanalan]

I include debt repayment as part of my savings %. I look at my savings % with principal payment and without. I think both are valid perspectives, so I try to consider both.

[mginwa]

I do a mix. I consider payments toward principal of my student loans as a form of savings, but I consider the interest an expense. I would personally only consider principal of student loans and mortgage payments as savings in this way, though--any other kind of loan would just be an expense. I figure they are both net-worth-increasing investments financed by debt, so principal payments increase my overall net worth. Other debt (credit cards, car loan) is stupid so I wouldn't give myself any credit for that if I had those kinds of payments, but that distinction is kind of judgy and arbitrary. If someone had serious debt issues they were working hard to resolve, those principal payments would be really positive progress and could also be considered a form of saving. I would consider interest an expense no matter what, though.

[mveill1]

Principal is savings. In general money that flows out of your account is either an expense, or savings. That is it - though the accounting may get complicated. You can make up your own categories that you believe will motivate/guilt you better, but it doesn't really change the reality. If you're silly enough to put your groceries on credit card (not for points, I mean as a balance that carries), then you've already paid for the groceries; that's the expense. You pay interest to the credit card company, another expense. But the principal is savings; you already paid for the food.

You may feel that you're cheating by counting your student loan repayments as savings; this may be because you just started out tracking your budget and so you haven't recorded your school fees as expenses? But imagine you had started tracking correctly five years ago, then you can see that not counting loan repayments as savings would mean you're "expensing" the school fees twice.

Note in the above example, strictly speaking you should separate the interest portion from the principal and record that bit as an expense.

... and in the future you'll avoid borrowing so you don't need to worry about all this!

[StashthatCash]

Thanks for the feedback guys!  It's very much appreciated.  I was up in the air about it because of the fact that I was taking money from my savings accounts ( a negative) and increasing my net worth (a positive)  It makes sense to count the principle as part of my savings numbers going forward.  Thanks again!

[starguru]

Thanks for the feedback guys!  It's very much appreciated.  I was up in the air about it because of the fact that I was taking money from my savings accounts ( a negative) and increasing my net worth (a positive)  It makes sense to count the principle as part of my savings numbers going forward.  Thanks again!

I don't count debt payment as savings.  It contributes to positive net worth, but it's not savings as in savings percent.

If you consider principle repayment as savings increase, then paying off the principal on a credit card counts as savings.  That's silly.  If I buy a $1000 TV on a CC, then pay off the credit card, I haven't saved $1000. 

I think counting debt repayment as savings is really just padding the numbers so people can feel better about their savings rates. 

[netskyblue]

I don't count it as savings, You're paying for something you've already got the use of (be it a TV or an education).

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

My savings is the money I earn that I keep.

[Moonwaves]

I do only when I am trying to not feel so down about everybody else here's 40% and 50% numbers. By which I mean I look at my transfers to savings accounts and to retirement plans as a percentage of income but I also separatley look at that number if my debt repayment is added in (down to less than 2,000 so gone completely and for good in a couple of months). Once I add in my debt repayment I'm not at all far off from 50%, which means I put myself under less pressure for not achieving what others are achieving. While some people might find that kind of thing a huge spur to save more, I'm one of those who would start filling up with self-hate, potentially spiralling into uncontrolled spending just for spite. So I think a lot depends on your pyschological make-up.

For a long time I was bothered by my savings rate being way too low because I wasn't including my pensions, since I still had quite a juvenile view that if I couldn't get at the money then it wasn't really money I had - just some amorphous stuff that I'd get some day in a very distant future. So my savings rate was barely hitting 10%. It was only when I started adding in the pensions that I started realising that despite my terrible track record, at least doing some pension stuff as automatic meant I wasn't doing too badly.

[mveill1]

If you consider principle repayment as savings increase, then paying off the principal on a credit card counts as savings.  That's silly.  If I buy a $1000 TV on a CC, then pay off the credit card, I haven't saved $1000. 

I think counting debt repayment as savings is really just padding the numbers so people can feel better about their savings rates.

... as I said people can do what they want, but let's take these two example scenarios about a guy who makes $50,000 a year:
1) in January, I put $1,000 aside; In February, I buy a television for $1,000
2) In January, I buy a television for $1,000 on credit card; In February's CC bill I pay the $1,000 plus say $50 in interest.

So let's say it's now March 31st. Don't we agree that the difference between 1) and 2) is that in 2) you're poorer by $50 because of the interest - which is why you shouldn't borrow in the first place?

But my understanding of your point is that under scenario 1, my savings rate will be HIGHER by almost a full 2% (1,000 / 50,000, ignoring the interest for sake of example). That is because in scenario 2 I would have to count 1,000 as an expense twice.

I don't see how the guy in scenario 1) should delude himself in thinking he's saving that much more. He's saving interest which is great, but he's almost as "spendy".

Personally, counting principal repayment on my mortgage as savings does not make me feel better because it increases my savings rate; I'd just rather do the calculation correctly, and change my interpretation of the percentage to suit my circumstances, or dig into the numbers to properly understand what drives them.

[mveill1]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic! 

[starguru]

If you consider principle repayment as savings increase, then paying off the principal on a credit card counts as savings.  That's silly.  If I buy a $1000 TV on a CC, then pay off the credit card, I haven't saved $1000. 

I think counting debt repayment as savings is really just padding the numbers so people can feel better about their savings rates.

... as I said people can do what they want, but let's take these two example scenarios about a guy who makes $50,000 a year:
1) in January, I put $1,000 aside; In February, I buy a television for $1,000
2) In January, I buy a television for $1,000 on credit card; In February's CC bill I pay the $1,000 plus say $50 in interest.

So let's say it's now March 31st. Don't we agree that the difference between 1) and 2) is that in 2) you're poorer by $50 because of the interest - which is why you shouldn't borrow in the first place?

that's not my main point but you have reached a logical conclusion here.

But my understanding of your point is that under scenario 1, my savings rate will be HIGHER by almost a full 2% (1,000 / 50,000, ignoring the interest for sake of example). That is because in scenario 2 I would have to count 1,000 as an expense twice.

I don't see how the guy in scenario 1) should delude himself in thinking he's saving that much more. He's saving interest which is great, but he's almost as "spendy".

Personally, counting principal repayment on my mortgage as savings does not make me feel better because it increases my savings rate; I'd just rather do the calculation correctly, and change my interpretation of the percentage to suit my circumstances, or dig into the numbers to properly understand what drives them.

My point is paying off principle on a debt does not count towards savings.  It counts towards your net worth though. 

In scenario 1, if you saved $1000 in Jan and never bought the TV, you could add the $1000 to your savings rate.  But because you bought the TV, you presumably spent $1000, so the net effect on your net worth is nil.
In scenario 2, when you buy on credit, you increase your liabilities by 1000.  That liability increases to 1050 because of interest.  The next month you decrease your liabilities by 1050.  Your net worth has decreased by $50. 

In neither scenario has anything been saved when the accounting is performed is march. 

[JLee]

I haven't, but now I'm wondering if I should count my mortgage principle payment.  If so, I'm getting really close to 50%. :D

[Franklin]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic!

I have mixed agreement and disagreement with your comment.

Agree:  You take the expense on the month that you purchased it.  Now matter how you pay for it, cash or credit.

Disagree: Your net worth does not go down when you buy a TV.  You still have the TV so you should create an asset on your books in the amount of your purchase.  Since net worth equals assets minus liabilities, it doesn't move the needle.  For that matter, neither does paying your mortgage.  Your net worth goes up when you make income (an asset), not when you move cash (an asset) to another asset (your house).

[JLee]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic!

I have mixed agreement and disagreement with your comment.

Agree:  You take the expense on the month that you purchased it.  Now matter how you pay for it, cash or credit.

Disagree: Your net worth does not go down when you buy a TV.  You still have the TV so you should create an asset on your books in the amount of your purchase.  Since net worth equals assets minus liabilities, it doesn't move the needle.  For that matter, neither does paying your mortgage.  Your net worth goes up when you make income (an asset), not when you move cash (an asset) to another asset (your house).

Using that argument, would you say that paying rent makes your net worth go down but paying a house off does nothing?

[Jags4186]

IMO savings is money you don't spend and have available to either invest or stick in a bank account. If you make $4000 a month, and have $2000 of living expenses and $2000 of debt payments your savings rate is 0%. It seems illogical to me to include debt payments as savings because you already spent that money!! That's why you have debt!

I don't include paying your mortgage principle because again...you already spent the money on the house.  Now yes eventually by paying off your home you will decrease your monthly required income, but no one includes dividends or stock appreciation in the savings rates that I know of here so no reason to include your mortgage payment.

[Moonwaves]

OP, did you ask this question because you saw MMM's new blog post or is that just a coincidence? Off to read it now to see what he has to say about it.

[mveill1]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic!

I have mixed agreement and disagreement with your comment.

Agree:  You take the expense on the month that you purchased it.  Now matter how you pay for it, cash or credit.

Disagree: Your net worth does not go down when you buy a TV.  You still have the TV so you should create an asset on your books in the amount of your purchase.  Since net worth equals assets minus liabilities, it doesn't move the needle.  For that matter, neither does paying your mortgage.  Your net worth goes up when you make income (an asset), not when you move cash (an asset) to another asset (your house).

If you count "stuff" like TVs in your net worth, you're right and you should maintain a balance sheet.

[Le0]

Yes - because as soon as I pay off my debt the same amount is going into my savings.

I wouldn't include a mortgage as savings.

[Moonwaves]

Just had a quick glance at today's blog post and this is what jumps out at me in relation to the different attitudes here:

The savings rate is simply the percentage of your take home pay that you’re not spending.

It might seem obvious that repayment of debt is not saving but there is something, I feel, to the argument that repayment of debt isn't "spending" really. At least to those struggling to not spend a lot and trying to repay large amounts of debt.

If you like, there is not just saving versus spending, there is also repayment of debt and I think it's helpful for those in debt to differentiate between spending and debt.

[Franklin]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic!

I have mixed agreement and disagreement with your comment.

Agree:  You take the expense on the month that you purchased it.  Now matter how you pay for it, cash or credit.

Disagree: Your net worth does not go down when you buy a TV.  You still have the TV so you should create an asset on your books in the amount of your purchase.  Since net worth equals assets minus liabilities, it doesn't move the needle.  For that matter, neither does paying your mortgage.  Your net worth goes up when you make income (an asset), not when you move cash (an asset) to another asset (your house).

Using that argument, would you say that paying rent makes your net worth go down but paying a house off does nothing?

You are correct.  Rent is an expense with no corresponding equity.  So your net worth would go down. Now, if you were to buy a house, you would record a "house" asset and a "mortgage" liability.  This would have no effect on your net worth.  Then you receive your next pay check and your net worth would go up.  Finally, you use that pay check to pay your mortgage, and your net worth stays the same. 

[lackofstache]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic!

I have mixed agreement and disagreement with your comment.

Agree:  You take the expense on the month that you purchased it.  Now matter how you pay for it, cash or credit.

Disagree: Your net worth does not go down when you buy a TV.  You still have the TV so you should create an asset on your books in the amount of your purchase.  Since net worth equals assets minus liabilities, it doesn't move the needle.  For that matter, neither does paying your mortgage.  Your net worth goes up when you make income (an asset), not when you move cash (an asset) to another asset (your house).

The problem w/ this mortgage argument, to me at least, would be that while paying down the balance of the loan you can decrease debt while not ichanging your assets which provides a gain in net worth even though you're just "moving cash (an asset) to another asset (your house).

[mveill1]

If you consider principle repayment as savings increase, then paying off the principal on a credit card counts as savings.  That's silly.  If I buy a $1000 TV on a CC, then pay off the credit card, I haven't saved $1000. 

I think counting debt repayment as savings is really just padding the numbers so people can feel better about their savings rates.

... as I said people can do what they want, but let's take these two example scenarios about a guy who makes $50,000 a year:
1) in January, I put $1,000 aside; In February, I buy a television for $1,000
2) In January, I buy a television for $1,000 on credit card; In February's CC bill I pay the $1,000 plus say $50 in interest.

So let's say it's now March 31st. Don't we agree that the difference between 1) and 2) is that in 2) you're poorer by $50 because of the interest - which is why you shouldn't borrow in the first place?

that's not my main point but you have reached a logical conclusion here.

But my understanding of your point is that under scenario 1, my savings rate will be HIGHER by almost a full 2% (1,000 / 50,000, ignoring the interest for sake of example). That is because in scenario 2 I would have to count 1,000 as an expense twice.

I don't see how the guy in scenario 1) should delude himself in thinking he's saving that much more. He's saving interest which is great, but he's almost as "spendy".

Personally, counting principal repayment on my mortgage as savings does not make me feel better because it increases my savings rate; I'd just rather do the calculation correctly, and change my interpretation of the percentage to suit my circumstances, or dig into the numbers to properly understand what drives them.

My point is paying off principle on a debt does not count towards savings.  It counts towards your net worth though. 

In scenario 1, if you saved $1000 in Jan and never bought the TV, you could add the $1000 to your savings rate.  But because you bought the TV, you presumably spent $1000, so the net effect on your net worth is nil.
In scenario 2, when you buy on credit, you increase your liabilities by 1000.  That liability increases to 1050 because of interest.  The next month you decrease your liabilities by 1050.  Your net worth has decreased by $50. 

In neither scenario has anything been saved when the accounting is performed is march.

Then we just have a point of semantics. I say, I believe correctly, that in economic terms money is either expensed or saved.

In other words,
Saving = Income - Expenses

There is no third option in the economic sense of the word - you can use different labels but the economic meaning will fall under one or the other. Using that logic your savings rate will always be "correct". That is because savings rate should be viewed as a concept over time. Don't get hung up over what happens in one month and what happens in the next; it's the net effect of the two months and every period over your lifetime that matter.

Going back to our examples, in both cases the guy has saved nothing - that is what I thought I was showing with my own examples. Expensing the TV when bought, and classifying the principal repayment as savings when you pay it off, together get you to the 0% saving rate (imagine the guy's salary is only $1000 per annum; his saving rate would be 0%). Interest is pure waste (expense).

This way, over time, your savings rate will correctly reflect the impact of what you've done; you earned money, and saved none of it.

Take it yet another way; using my method the savings rate will end up being the same as if you had withdrawn $1000 from the ATM and flushed it down the toilet (over time that is - which is the only perspective that matters). Difference is you won't have a TV, so arguably the "purist" view of net worth is different but I don't want to get into the balance sheet view of things.

[starguru]

If you consider principle repayment as savings increase, then paying off the principal on a credit card counts as savings.  That's silly.  If I buy a $1000 TV on a CC, then pay off the credit card, I haven't saved $1000. 

I think counting debt repayment as savings is really just padding the numbers so people can feel better about their savings rates.

... as I said people can do what they want, but let's take these two example scenarios about a guy who makes $50,000 a year:
1) in January, I put $1,000 aside; In February, I buy a television for $1,000
2) In January, I buy a television for $1,000 on credit card; In February's CC bill I pay the $1,000 plus say $50 in interest.

So let's say it's now March 31st. Don't we agree that the difference between 1) and 2) is that in 2) you're poorer by $50 because of the interest - which is why you shouldn't borrow in the first place?

that's not my main point but you have reached a logical conclusion here.

But my understanding of your point is that under scenario 1, my savings rate will be HIGHER by almost a full 2% (1,000 / 50,000, ignoring the interest for sake of example). That is because in scenario 2 I would have to count 1,000 as an expense twice.

I don't see how the guy in scenario 1) should delude himself in thinking he's saving that much more. He's saving interest which is great, but he's almost as "spendy".

Personally, counting principal repayment on my mortgage as savings does not make me feel better because it increases my savings rate; I'd just rather do the calculation correctly, and change my interpretation of the percentage to suit my circumstances, or dig into the numbers to properly understand what drives them.

My point is paying off principle on a debt does not count towards savings.  It counts towards your net worth though. 

In scenario 1, if you saved $1000 in Jan and never bought the TV, you could add the $1000 to your savings rate.  But because you bought the TV, you presumably spent $1000, so the net effect on your net worth is nil.
In scenario 2, when you buy on credit, you increase your liabilities by 1000.  That liability increases to 1050 because of interest.  The next month you decrease your liabilities by 1050.  Your net worth has decreased by $50. 

In neither scenario has anything been saved when the accounting is performed is march.

Then we just have a point of semantics. I say, I believe correctly, that in economic terms money is either expensed or saved.

In other words,
Saving = Income - Expenses

There is no third option in the economic sense of the word - you can use different labels but the economic meaning will fall under one or the other. Using that logic your savings rate will always be "correct". That is because savings rate should be viewed as a concept over time. Don't get hung up over what happens in one month and what happens in the next; it's the net effect of the two months and every period over your lifetime that matter.

Going back to our examples, in both cases the guy has saved nothing - that is what I thought I was showing with my own examples. Expensing the TV when bought, and classifying the principal repayment as savings when you pay it off, together get you to the 0% saving rate (imagine the guy's salary is only $1000 per annum; his saving rate would be 0%). Interest is pure waste (expense).

This way, over time, your savings rate will correctly reflect the impact of what you've done; you earned money, and saved none of it.

Take it yet another way; using my method the savings rate will end up being the same as if you had withdrawn $1000 from the ATM and flushed it down the toilet (over time that is - which is the only perspective that matters). Difference is you won't have a TV, so arguably the "purist" view of net worth is different but I don't want to get into the balance sheet view of things.

I don't think we disagree.  Paying off debt is not saving anything.  It's handing over the money you spent when the debt was incurred.

[mveill1]

I don't think we disagree.  Paying off debt is not saving anything.  It's handing over the money you spent when the debt was incurred.

I'd have to see how you do your own calculations. I don't believe there is an economic difference between saving and repaying debt, and I see no need to make a difference - I just want to get the savings rate calculation right. I don't need to pad or decrease the number; those are psychological crutches IMO. My point is that whatever you call it, to get the correct savings rate over time you have to treat debt repayments exactly the same as you do savings in the savings rate calculation. I'm not sure if we agree on this particular point.

I don't see how one would use a savings rate calculated in any other way to figure out their time to retirement. The figures given by MMM as an indication would certainly not work. The math works assuming the equation I gave in a previous post.

[slugline]

Paying down a debt does not immediately change net worth, so I don't count that as immediate savings.

However, paying down debt can result in avoidance of future interest expenses. And the money that would have paid that interest expense remains as part of your net worth. That is where the savings actually happens -- when you don't give your future self "the shaft."

[starguru]

I don't think we disagree.  Paying off debt is not saving anything.  It's handing over the money you spent when the debt was incurred.

I'd have to see how you do your own calculations. I don't believe there is an economic difference between saving and repaying debt, and I see no need to make a difference - I just want to get the savings rate calculation right. I don't need to pad or decrease the number; those are psychological crutches IMO. My point is that whatever you call it, to get the correct savings rate over time you have to treat debt repayments exactly the same as you do savings in the savings rate calculation. I'm not sure if we agree on this particular point.

I don't see how one would use a savings rate calculated in any other way to figure out their time to retirement. The figures given by MMM as an indication would certainly not work. The math works assuming the equation I gave in a previous post.

I actually dont ever calculate savings rate, because i dont care, but if i did I would do the following:

At the end of the year i take my take home after taxes, how much I added into various accounts, and do the division.  So if I took home 50k, and had 20k in additions to my various accounts, I get 40%. 

I calculate my networth by taking assets - liabilities.  So any principle payments I make towards credit cards don't end up as savings since that is not money going into my accounts.  Any mortgage payments do end up increasing my networth (but not my savings rate), since my home is a significant asset.

So if saved 20k, had 10k in investment growth, and payed down 20k on my mortgage (i.e. increased my equity in my home by 20k), my NW increased by 50k. 

[Franklin]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic!

I have mixed agreement and disagreement with your comment.

Agree:  You take the expense on the month that you purchased it.  Now matter how you pay for it, cash or credit.

Disagree: Your net worth does not go down when you buy a TV.  You still have the TV so you should create an asset on your books in the amount of your purchase.  Since net worth equals assets minus liabilities, it doesn't move the needle.  For that matter, neither does paying your mortgage.  Your net worth goes up when you make income (an asset), not when you move cash (an asset) to another asset (your house).

The problem w/ this mortgage argument, to me at least, would be that while paying down the balance of the loan you can decrease debt while not ichanging your assets which provides a gain in net worth even though you're just "moving cash (an asset) to another asset (your house).

It's not really as much of an argument as it is general accounting practice, which is based on the double entry account system.  http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system

Agreed that you are paying down debt.  But that doesn't equate to a change in your net worth.  You are paying down the debt with an asset you already own - your cash.  So it's a transfer.

[marblejane]

Just a word of warning to OP- make sure that you check with your student loan provider on how those extra payments are being applied. The default is often set to make an advance payment (in other words, if your monthly payment is $500 and you pay $1,000 on 2/1, then your next payment isn't due until 4/1). The problem with this default setting is that you are essentially pre-paying interest instead of paying down principal.

[StashthatCash]

Moonwaves, it happened to be 100% coincidence that his article happened to be on how MMM calculates net worth.  I thought it was pretty funny when I read that today.  It's interesting to see all the differing views on this subject. Personally I can see both sides being correct based on the examples people have been giving.  Thanks again guys for all the feedback, I really appreciate it.

[mveill1]

If I purchased a TV last year on credit, I didn't spend any money for it last year, I promised them I would spend my FUTURE money on it.  Now, when I pay that credit card statement, I am trading my dollars for a TV.

I'm not sure I follow: you did spend the money and you should record the expense in that very month so it hits the savings rate during that month. Your net worth goes down by the amount of the TV plus whatever interest charges it costs you in subsequent months.

But since we mustachians don't engage in such silliness, it's quite academic!

I have mixed agreement and disagreement with your comment.

Agree:  You take the expense on the month that you purchased it.  Now matter how you pay for it, cash or credit.

Disagree: Your net worth does not go down when you buy a TV.  You still have the TV so you should create an asset on your books in the amount of your purchase.  Since net worth equals assets minus liabilities, it doesn't move the needle.  For that matter, neither does paying your mortgage.  Your net worth goes up when you make income (an asset), not when you move cash (an asset) to another asset (your house).

The problem w/ this mortgage argument, to me at least, would be that while paying down the balance of the loan you can decrease debt while not ichanging your assets which provides a gain in net worth even though you're just "moving cash (an asset) to another asset (your house).

It's not really as much of an argument as it is general accounting practice, which is based on the double entry account system.  http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system

Agreed that you are paying down debt.  But that doesn't equate to a change in your net worth.  You are paying down the debt with an asset you already own - your cash.  So it's a transfer.

Actually this is a much better way of putting it than I struggled to come up with. It's not the fact that the money goes towards reducing a loan that makes it the same as savings for saving rate purposes; it's the fact you haven't spent it.

[slugline]

I calculate my networth by taking assets - liabilities.  So any principle payments I make towards credit cards don't end up as savings since that is not money going into my accounts.  Any mortgage payments do end up increasing my networth (but not my savings rate), since my home is a significant asset.

So if saved 20k, had 10k in investment growth, and payed down 20k on my mortgage (i.e. increased my equity in my home by 20k), my NW increased by 50k.

Paying down the mortgage by 20K should be a networth-neutral event, because one of your other asset accounts also ends up being depleted by the same amount. So I'd call it a NW gain of only $30K.

[starguru]

I calculate my networth by taking assets - liabilities.  So any principle payments I make towards credit cards don't end up as savings since that is not money going into my accounts.  Any mortgage payments do end up increasing my networth (but not my savings rate), since my home is a significant asset.

So if saved 20k, had 10k in investment growth, and payed down 20k on my mortgage (i.e. increased my equity in my home by 20k), my NW increased by 50k.

Paying down the mortgage by 20K should be a networth-neutral event, because one of your other asset accounts also ends up being depleted by the same amount. So I'd call it a NW gain of only $30K.

Well technically, I had 40k of take home income, which was networth positive 40k.  Since that 40k stayed under my control (20k to savings, 20k to home equity), my NW increase was 50k (40k take home + 10k asset appreciation).

But I take your point that actually paying the mortgage and moving from my checking to savings are NW neutral.

[I'm a red panda]

Not savings. You are paying for something you already purchased.

[KMMK]

Debt pay-off for a depreciating asset like a car - no - that's an expense. But the amount I put towards the principle portion of my mortgage is a type of savings, as hopefully I'll get that money back. If I was renting, the same amount would go into investments. I do track both ways as I need to know how much my net worth is increasing, but also how much I have left available for other investments.

[Davids]

Principle toward a mortgage yes. Paying student loans, car loan, credit card, etc then I do not. I suppose some may argue principle toward car should be included.