It's more than a house. It's an adventure.

Thursday, July 06, 2006

Truth hurts

I went through some of our records over the last few days and updated loan payment data in Quicken. I have our loans set up in the software, but most of the payments had been recorded in a very simple fashion (my own mistake), applying the whole payment to the principal. Anyone who's dealt with a loan knows this is wrong - each payment is comprised of some money going to the principal, and some to the interest.

Why is this so important? First, it more accurately reflects the amount left to pay on the loan. And secondly, the outstanding loan balance detracts from one's total net worth. All this time, our net worth was showing as significantly higher, because all those payments had been going towards principal (as far as Quicken was concerned) and thus driving the balance down faster than in reality. And thirdly, tracking the interest spent can provide insight into how one can reduce money going straight out the window, and plan extra payments against principal accordingly.

The data isn't 100% cleaned up, but it's a lot more accurate than it was. The net worth is a lot lower now, but at least it's more correct.

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