Plane value vs. Personal Net Worth?

I've been paying cash for more than half of my adult life, and every purchase for the rest of it will be cash - including the next house. How exactly is it outmoded?
 
I've been paying cash for more than half of my adult life, and every purchase for the rest of it will be cash - including the next house. How exactly is it outmoded?
Many of us are pleased to be flying 40-50 year old airplanes. There's nothing wrong with "outmoded".
 
Many of us are pleased to be flying 40-50 year old airplanes. There's nothing wrong with "outmoded"

You said cash only is outmoded. I am wondering how it is outmoded.
 
I have a different set of lifestyle goals and take a different approach. I have no desire to drive a car for 10 years. I either buy, finance, or lease a new car every 2-4 years.

Neither approach is right or wrong.

Depends upon your definition. Your approach is definitely wrong from a standpoint of fiscal prudency. You can argue that the value you get emotionally from driving new(er) cars consistently is worth the financial cost to you personally, and no one can debate that, but you can't argue that it makes sense from a practical financial standpoint. It doesn't.

The point that others have made about being able to pay cash for depreciable assets (read that carefully..."being ABLE to," not necessarily doing so.... if financing terms are good enough that the money you would have used to pay for it will earn you more than the interest will cost you to finance) mirrors my philosophy. Almost everyone needs to borrow for their home should they wish to own one, but generally that's an appreciable asset. Anything else that's not used in a business setting... have the cash for. Maybe don't use it if finance terms are great....but have it.

Exactly. The "cash only" concept is an outmoded idea that fails to take advantage of a large potentially valuable component of a personal finance plan. Managed properly, it allows a person to have things that he/she might not otherwise be able to afford. Like....a house, a car, or an airplane.

We all have to find a way to afford to live the life we want to live to the extent possible. If that personal finance concept works for you in your particular financial situation, then more power to you. Fortunately, there's no shortage of financial plans and tools to help make that happen for people who don't ascribe to the "cash-only" concept.

The idea that the ability to pay cash philosophy is old, out-dated, or doesn't apply to the most recent generation or two because of the desire to have things now or the existence of "financial plams and tools to make that happen" isn't a new attitide...just more prevalent and embraced than it used to be. The bottom line is, if you HAVE to finance something, by definition it means you can't afford it....you need help to buy it. To some, living large while incurring debt and deferring wealth accumulation and security is a comfortable lifestyle. As long as those folks never default on their loans, are responsible for their own bills and expenses throughout their entire lives, and don't need to rely on others who, due to their outmoded and antiquated approach to fiscal responsibility and sound financial planning are debt free and well off by middle age, I guess there's no reason to say the "go in debt now to have the toys you want because you only go around once" approach is bad. At some point, the piper must be paid. In my experience, it was really nice to keep the piper's bill really small early in life and get to the point in my early 50s when the piper will never be a concern, nor will I be a concern or burden to anyone else.

Not outmoded thinking at all...just not as common as it used to be.
 
Depends upon your definition. Your approach is definitely wrong from a standpoint of fiscal prudency. You can argue that the value you get emotionally from driving new(er) cars consistently is worth the financial cost to you personally, and no one can debate that, but you can't argue that it makes sense from a practical financial standpoint. It doesn't.
Really? What is my financial situation? What's my net worth, what's my income, what are my expenses? You must know those things in order to label me "fiscally imprudent". Or are you saying that the would be fiscally imprudent for you, given your financial situation? Do I have to live my life by your "outmoded" financial rules that you developed to fit your resources? Or, having worked hard for financial success over many years, can I indulge myself while still feeding and educating my family without being criticized by financial curmudgeons on an airplane website?
 
Really? What is my financial situation? What's my net worth, what's my income, what are my expenses? You must know those things in order to label me "fiscally imprudent". Or are you saying that the would be fiscally imprudent for you, given your financial situation? Do I have to live my life by your "outmoded" financial rules that you developed to fit your resources? Or, having worked hard for financial success over many years, can I indulge myself while still feeding and educating my family without being criticized by financial curmudgeons on an airplane website?
Not sure why you took offense...I didn't label YOU as anything. It is just fact that buying or leasing a new car every two or three years costs a LOT more money than not doing so. A new car every few years is a "want," not a "need," and few would argue that it is prudent to spend money unnecessarily on things you don't need. It may be an emotional need or want, but that doesn't make it prudent. Not everyone embraces prudency....prudency is not a necessity.
I also said "there's no reason to say that (your approach)....is bad" with the caveat that you remain responsible for your own debt. What did I say that offended you so much?
 
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Exactly. The "cash only" concept is an outmoded idea that fails to take advantage of a large potentially valuable component of a personal finance plan. Managed properly, it allows a person to have things that he/she might not otherwise be able to afford. Like....a house, a car, or an airplane.

I dont agree that it is 'outmoded'. If that is how someone wants to run their finances, I have nothing but respect for it. Its not 'outmoded' as it works today just as well as it worked 50 years ago. There is no person more secure in their financial situation than the one who owns his house, car, plane outright and has cash reserves on top of that to cover for any uninsurable contingencies.



I just wish the cash-only folks weren't such sanctimonious a-holes towards those who opt to use some bank money when it fits into their personal risk/reward calculus.
 
I paid cash for my Sport back in 1996. Over the years I have spent a lot of time maintaining it. The labor involved most of the time far exceeds the cost of parts/materials.

I enjoy working on and maintaining my plane. I have an A&P certificate and have worked on planes since HS. 4 years active Navy and 10 years USNR maintaining aircraft. Don't think I could afford ownership if I had to pay someone to maintain my plane.

That said my plane is worth about 2% my net worth. My last annual cost me less than $100 in parts and I gave the IA a Fluke HVAC meter set for the inspection, barter/trade can be a good thing.

Lately I've been thinking about moving from a tricycle gear plane to a tail wheel plane. My reasoning is to start to better enjoy SE AK were I live. This would allow me to start to fly into remote areas such as beaches and or unimproved strips.

Not sure if that will happen but it sure would be fun.
 
...I just wish the cash-only folks weren't such sanctimonious a-holes towards those who opt to use some bank money when it fits into their personal risk/reward calculus.
Did anyone espousing the more conservative approach to finances call anyone who doesn't do so a vulgar name... or call them names at all?
 
Debt is a very powerful tool. Lots of people don’t understand how debt, interest, and net worth all work together, so they become sanctimonious *******s about not using debt for toys or whatever statement makes them feel better about their own decisions. Hindsight bias. Hell Dave Ramsey made a fortune by spouting that, but even he says it oversimplifies things and just saying no is a way to get dumb people to make smarter financial decisions than they otherwise would have. Dave will tell you that mathematically his approach is definitely not the best.

If I can get a 3% loan and invest money for 3.1% return, it is a good mathematical decision to borrow the money. No question. If I can get 6% returns, it’s even better. If you argue that, you’re arguing against math. Sure, you can argue risk, but that’s not what I’m talking about. If you’re not managing the rest of your financial life in the most efficient way possible, you shouldn’t be lecturing someone else about how they should do it like you. It’s like the pudgy guy at the gym trying to tell you how to workout.

All you guys talking about impact to net worth - you realize if I finance the whole plane, the impact to my net worth is zero, right?
 
All you guys talking about impact to net worth - you realize if I finance the whole plane, the impact to my net worth is zero, right?

Not if the planes payments is less than your income (assuming no change in value of the plane). You’ll be paying interest.

Technically even buying the plane with cash does not change your net worth, because no interest is paid.


Tom
 
Not if the planes payments is less than your income (assuming no change in value of the plane). You’ll be paying interest.

Technically even buying the plane with cash does not change your net worth, because no interest is paid.


Tom
Right - in the future your interest expense would impact net worth, but NW is a simple point in time calculation. If you borrow and your returns on the amount you would have paid are higher than interest, your NW goes up, so considering all factors, including opportunity costs, you’re just supporting my point.

As a percentage of NW, a plane with a 100% loan on it is zero (zero divided by anything is zero). If I otherwise have a $100k net worth and borrow $30k to buy a $50k plane, my plane is 20% (20/100) of my net worth. If I were to pay cash for it, it would be 50% of my net worth. Point is that by arguing a maximum net worth percentage, you are arguing for more debt/higher LTV.
 
Debt is a very powerful tool. Lots of people don’t understand how debt, interest, and net worth all work together, so they become sanctimonious *******s about not using debt for toys or whatever statement makes them feel better about their own decisions. Hindsight bias. Hell Dave Ramsey made a fortune by spouting that, but even he says it oversimplifies things and just saying no is a way to get dumb people to make smarter financial decisions than they otherwise would have. Dave will tell you that mathematically his approach is definitely not the best.

Yep, we live a debt free life but when it comes time for a plane or a new car if I can make the math work in my favor I'll finance it. That being said. There is great satisfaction in not paying mortgages or car payments that can sometimes exceed the math in peace of mind.
 
Financing an asset, whether or not there’s interest attached to it, automatically lowers your net worth, since that asset now becomes a liability (debt to repay). Some of y’all need to take a finance class ;)
 
Financing an asset, whether or not there’s interest attached to it, automatically lowers your net worth, since that asset now becomes a liability (debt to repay). Some of y’all need to take a finance class ;)
You’ll need to be the first to take a finance class.

Debit asset, credit liability.

assets go up, so do liabilities.

anymore brain busters?
 
Guessing it's because you're giving someone an unsolicited lecture about fiscal responsibility. Seems as if all discussions about taking on debt turn out this way.

Ever notice it’s the same reaction as other addictions when called out in an intervention? :)

(Says the guy with lots of vices... like everybody else...) LOL

“I can make the payments...” ... if I don’t have a job loss in the next seven (car) / thirty (mortgage) years.

“Real estate is an appreciable asset...” ... unless the inflation merry go round stops.

“Being a landlord is an excellent way to build wealth with someone else’s money...” ... until your tenants are allowed to stop payment to sit at home during a virus lockdown. (Chatting with someone I don’t know but has a major problem owning 12 rental properties on mortgages right now.)

The list of risks incurred, known risks (who doesn’t lose a job or have new major finance problems inside of thirty years?! Almost no one...) and unknown (Schrodinger’s Virus) when choosing debt (especially the direct and clear one of using debt on a depreciating asset!) are mostly ignored due to denial, not anything rational. Denial is a standard addictive personality response.

Even people carrying “zero percent” loans, let’s say even with every penny of it available in liquid capital to pay it off at a moment’s notice, aren’t going to pay it off the day a Doc says their kiddo needs a $100K surgery to survive. The money will be shifted to the higher priority and the loan will remain. Maybe even stop paying and let that fancy chunk of rolling metal and wheels get repoed. Or file for the “bankruptcy car wash”.

I don’t lecture folks who use or want debt, but I do point out the guaranteed risk they’re taking. As long as they get that, they can do as they please... right up until they ask politicians to socialize their lack of personal discipline in risk taking and accepting their own mistakes and own their losses. That last part is simply immoral.

Whether paid back now or not, others shouldn’t be backstopping loans to save businesses like GM and AIG and numerous banks like Wells Fargo who continue to not just be slightly bad actors but who have continually been CAUGHT illegally scamming their own customer base REPEATEDLY.

But we are a weird society now where there can’t be any losers, even if their only way to stay alive is stealing from their own customers and we think a “good credit score” means we are “successful” at finance. Not just successful at an arbitrary game designed as skillfully as any casino designs ways to keep addicts at the table.

“You can’t have a good life without a good credit score.” Biggest lie ever believed for decades now. Sadly computers and automation amplify it. Lenders and underwriters, like anybody else, will happily take the easy/lazy path to researching someone’s ability to pay back anything. Especially if they know the loan is “guaranteed” by someone else. Just bundle that risk all the way from the bottom rung and ship it uphill.

It only crashed the entire world economy once. Why change behavior at any level? Personal, initial lender, Wall Street, insurers... it worked out so well! Just change the game rules whenever it happens. LOL.

Other addictions it’s harder to change the rules like that. Keep ingesting toxins, it eventually kills you. Most of us do know way back in our heads that the economic system will make it at least until after we are dead, and if a majority need detox, it’ll be done “free” on larger entity’s debt. Crank up the big loans and lower the purchasing power of currencies and keep the cheap money flowing. $500K for a wooden people box and drywall is totally normal in many places now.

Interestingly Schrodinger’s virus actually lowered our overinflated real estate market here, for the first time since the 2008 mass foreclosures. Prices took about a 10% haircut this last month. Even with many lending rates in the 2% range driving a “hurry up and buy” mentality.

In the end, it’s really nice to watch the insanity from the sidelines. The entirety of the loan industry is nothing more than side entertainment when one doesn’t participate.

Or at best an analysis of who’s doing zero percent (which is almost never truly zero after fees) for dipping a toe in occasionally if that’s the game play style that one prefers — “I only shoot up with heroin socially. My dealer knows a guaranteed rehab plan if I can’t control myself.” LOL.
 
You’ll need to be the first to take a finance class.

Debit asset, credit liability.

assets go up, so do liabilities.

anymore brain busters?
Go back and re-read. I’m describing the impact to personal net worth, not accounting for said transaction.

An asset that you’ve financed has a negative impact on your personal net worth, the opposite for an asset you’ve purchased outright in cash.

you realize if I finance the whole plane, the impact to my net worth is zero, right?

This is incorrect. Quite the opposite actually.
 
Given that:

1. Aircraft seem to need 5-10% of their hull value annually spent to keep airworthy, and

2. Financing an aircraft is just paying the purchase price with time and interest

...I don't think any of us should be giving one another financial prudence lessons. We're all decadent, fiscal idiots.
 
Go back and re-read. I’m describing the impact to personal net worth, not accounting for said transaction.

An asset that you’ve financed has a negative impact on your personal net worth, the opposite for an asset you’ve purchased outright in cash.



This is incorrect. Quite the opposite actually.

Not quite sure how you figure that.

Assuming the aircraft does not change in value, the value of the aircraft will equal the debt, therefore it will have a net zero change on your net worth. The two sides of the balance sheet still equal zero.

Even paying cash wouldn't make a difference either. You expended one asset - cash, for another asset - aircraft. The book still balances.
 
Not quite sure how you figure that.

Assuming the aircraft does not change in value, the value of the aircraft will equal the debt, therefore it will have a net zero change on your net worth. The two sides of the balance sheet still equal zero.

Even paying cash wouldn't make a difference either. You expended one asset - cash, for another asset - aircraft. The book still balances.

Well, that depends on the state you live in. In Michigan you will automagically take a 6% hit on the purchase - whether financed or paid for in cash. On a $100,000 purchase I just took a $6,000 hit to my NW. Negligible? Most likely, but still technically a change.
 
Spend on an asset, cash goes down, assets go up. As long as it's fairly priced, your net worth hasn't changed at all. Same is true if you finance it. The rub is that most assets we're talking about take an immediate hit in value. e.g. New car, boat, RV driven off the lot loses X% of it's value right away. To make it simpler, let's say you buy some gold. How has your net worth changed? (assuming little movement in gold price)
 
Financing an asset, whether or not there’s interest attached to it, automatically lowers your net worth, since that asset now becomes a liability (debt to repay). Some of y’all need to take a finance class ;)

It only does so if the asset has no marketable value. If I buy a $100,000 plane on a loan, my debt increased by $100,000 but so did my assets. My net worth has remained exactly the same.
If I buy a plane with $100,000 cash that I happen to have lying around, it also doesn't affect my net worth one bit (at least in an abstract scenario, the fact that the sales proceeds of a $100,000 plane are not going to be exactly that number due to some built in friction, the net worth does decrease by a few $$).
 
Not quite sure how you figure that.

Assuming the aircraft does not change in value, the value of the aircraft will equal the debt, therefore it will have a net zero change on your net worth. The two sides of the balance sheet still equal zero.

Even paying cash wouldn't make a difference either. You expended one asset - cash, for another asset - aircraft. The book still balances.
Anything I have that I’m still paying the bank each month for, has a negative impact on my personal net worth. With each payment I make, assuming the value of that asset doesn’t decrease, I’m raising my personal net worth, since my assets are beginning to outnumber my liabilities.

Saying that ‘financing the whole plane has zero impact on net worth’ isn’t true. Unless you just received grandpa’s inheritance and it equals the price of the loan you just took out, than net worth absolutely takes a hit. The teeter totter doesn’t balance.
 
The rub is that most assets we're talking about take an immediate hit in value. e.g. New car, boat, RV driven off the lot loses X% of it's value right away

For the kind of many times traded older aircraft most people buy, happily the plane's value does not change as a function of being sold. What can be a substantial percentage reduction in net worth is absorbing transaction costs on a financed aircraft. In the case of a low down payment loan, an amount equal to the buyers entire equity in the plane can be lost just paying sales tax at between 5 and 10%, plus delivery transport, fuel etc. If in the worst case the down payment was half the money the buyer had, their net worth just dropped 50% and they now have no cash :)

This is the potential problem with leveraged aircraft purchases - the transaction costs and maintenance costs are in proportion to the value of the asset, while the buyers ability to own the aircraft may be on the scale of the down payment.
 
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Anything I have that I’m still paying the bank each month for, has a negative impact on my personal net worth. With each payment I make, assuming the value of that asset doesn’t decrease, I’m raising my personal net worth, since my assets are beginning to outnumber my liabilities.

Saying that financing ‘the whole plane’ has zero impact on net worth isn’t true. Unless you just received grandpa’s inheritance and it equals the price of the loan you just took out, than net worth absolutely takes a hit. The teeter totter doesn’t balance.

Your definitions do not match up with the definitions as they would be taught in a accounting or business school class.

This reminds me of a discussion we had either here or on the red board about 'risk management' a few years ago. There was a contributor with the handle 'Douglas Bader' (or 'DB' as in douchebag) who had re-defined a number of the terms for his own use and now argued with anyone who disagreed and tried to use the terms as commonly used in the industry.
 
Anything I have that I’m still paying the bank each month for, has a negative impact on my personal net worth. With each payment I make, assuming the value of that asset doesn’t decrease, I’m raising my personal net worth, since my assets are beginning to outnumber my liabilities.

Saying that ‘financing the whole plane has zero impact on net worth’ isn’t true. Unless you just received grandpa’s inheritance and it equals the price of the loan you just took out, than net worth absolutely takes a hit. The teeter totter doesn’t balance.

The value of the asset against which you took out the loan has to be factored into your net worth. You didn't take a loan and the value of the loan disappeared into thin air. The value of the aircraft adds to your net worth. The amount of the loan brings the balance of your net worth back to zero. As the loan is paid, your net worth increases because you have the value of the aircraft, but not the offsetting debt.

Net worth is not what you have in the bank. Its the total of the assets you have, minus any debt you have.
 
Not quite sure how you figure that.

Assuming the aircraft does not change in value, the value of the aircraft will equal the debt, therefore it will have a net zero change on your net worth. The two sides of the balance sheet still equal zero.

Until you make that 1st payment on the loan, which will be mostly interest and little principal. THEN, your net worth starts going down as the payments exceed the value of the aircraft. Unless of course you have equal cash in investments that meets or exceeds the interest. And that's where some advocate good use of credit can be, well, good lol.
 
This reminds me of a discussion we had either here or on the red board about 'risk management' a few years ago. There was a contributor with the handle 'Douglas Bader' (or 'DB' as in douchebag) who had re-defined a number of the terms for his own use and now argued with anyone who disagreed and tried to use the terms as commonly used in the industry.

That was on the red board. That DB was quite a character :)
 
Even people carrying “zero percent” loans, let’s say even with every penny of it available in liquid capital to pay it off at a moment’s notice, aren’t going to pay it off the day a Doc says their kiddo needs a $100K surgery to survive. The money will be shifted to the higher priority and the loan will remain. Maybe even stop paying and let that fancy chunk of rolling metal and wheels get repoed. Or file for the “bankruptcy car wash”.

You don't know that, maybe Mr Zero Percent has just enough liquid capital to cover the note, maybe he has far more. Everyone's situation is different.

As for me, when available I take the 0% loan, because every payment after loan initiation is paid in further devalued currency from that time point forward.
 
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Anything I have that I’m still paying the bank each month for, has a negative impact on my personal net worth. With each payment I make, assuming the value of that asset doesn’t decrease, I’m raising my personal net worth, since my assets are beginning to outnumber my liabilities.

Saying that ‘financing the whole plane has zero impact on net worth’ isn’t true. Unless you just received grandpa’s inheritance and it equals the price of the loan you just took out, than net worth absolutely takes a hit. The teeter totter doesn’t balance.
You clearly don’t understand the definition of net worth. As multiple posters have tried to explain to you, you are 100% wrong. You can trade an asset for an asset (eg cash for a plane) and your NW doesn’t change. Asset went down and another asset went up. You can also keep your cash and acquire an asset for the promise to pay in the future. Your assets went up and so did your liabilities, so net worth didn’t change. Net worth is assets minus liabilities.

Stop trying to use the Robert Kiyosaki definition of asset and liability. It’s wrong and he redefined those terms to make a point for poor people and to sell a book.

Get out a piece of paper and make up some examples. We can work through them together. I’ll show you how the math works.
 
You said cash only is outmoded. I am wondering how it is outmoded.

One is because interest rates are really low. For a long term loan one can earn more in the market.

The bigger one to many is that being leveraged is more acceptable than it used to be. Not saying that is right, just more the norm now than decades ago. Hence why cash only is "outmoded"; think "out of style" not "wrong". Talking with a financial advisor one time I said "I know we're making very good incomes and doing quite well on our retirement savings, but it just doesn't feel like we're as well off for our income. I see people driving Bentleys, Jaguars, Teslas..." She replied, "They're up to their eyeballs in debt and you two only have a home mortgage and not a big one for your income."
 
The value of the aircraft adds to your net worth. The amount of the loan brings the balance of your net worth back to zero. As the loan is paid, your net worth increases because you have the value of the aircraft, but not the offsetting debt.
If you go back to read the post, I said exactly this.

I’m not aware of any lender that offers money without interest, thus my rationale behind saying ‘financing the whole plane has zero impact on net worth’ isn’t true. Yes, it is true, if I take out a $50k loan against a $50k asset, my change in net worth is zero, but that just isn’t reality. If you earn more to offset the interest paid on the loan, than your net worth will rise, otherwise it will fall.
 
One is because interest rates are really low. For a long term loan one can earn more in the market.

That's not a guaranteed return though. When you find me a guaranteed return that outdoes interest rates, we can talk.

I'm still down 10+% from 6 months ago in "the market."
 
Stop trying to use the Robert Kiyosaki definition of asset and liability. It’s wrong and he redefined those terms to make a point for poor people and to sell a book.
I have no clue who that is, nor what his definitions are.

What I’m saying is, unless you have a lender offering free money or you have a way to offset the interest in your loan each month, your net worth will decrease. The teeter-totter has to balance. If we could all have no change to our net worth, yet still go out and buy a lot of new toys, we all would, sadly it doesn’t work that way.
 
When you find me a guaranteed return that outdoes interest rates, we can talk

Rented real estate in the right areas is pretty good at "guaranteed return"... although picking the area and property is important if reliable rent payments are your goal. And of course if you want to use the rent to pay a loan other than a mortgage on the property, the cost of entry is high.
 
Exactly. The "cash only" concept is an outmoded idea that fails to take advantage of a large potentially valuable component of a personal finance plan. Managed properly, it allows a person to have things that he/she might not otherwise be able to afford. Like....a house, a car, or an airplane.

Okay, are you planning on a reasonable cash reserve while you’re borrowing all this money? If not, then what happens if you’re revenue stream is significantly interrupted?
 
Rented real estate in the right areas is pretty good at "guaranteed return"... although picking the area and property is important if reliable rent payments are your goal. And of course if you want to use the rent to pay a loan other than a mortgage on the property, the cost of entry is high.

No no no. No quotes, not "almost guaranteed," not "well, pretty much guaranteed". I'm talking the equivalent of an FDIC you wont lose your investment, here's 5% on your money guarantee. Where are those at?
 
It was only a suggestion. I've been collecting rent on two properties since 2002 without a single rent payment skipped and with a maximum of 6 weeks vacancy. Close enough for me.

I think you could also buy the plane with the cash out home refinance, spend available cash in the amount of the aircraft value on an guaranteed income annuity instead of the plane, and at current rates have money left over every month after paying the mortgage with the annuity. Not my choice but you could do it.
 
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