Principal payments make no impact on net worth
To build on this blog posting regarding the concept of the location of assets and liabilities on a household’s balance sheet. Most people do not realize it but by making a principal payment towards a loan there is no impact to net worth at that specific point in time. Why?
This is because by making a principal payment towards a loan a person is reducing the amount that they owe by the same amount that they are reducing the balance in their checking account.
Posted: October 1st, 2008 under Personal Finance.
Tags: asset, liability, net worth, principal, principal payment
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Time October 4, 2008 at 4:43 pm
[...] *Making principal payments: See this blog posting. [...]