I don't think that word means what you think it means

[gwendally]

Last night on "Castle" there was a scene where Rick Castle's daughter asked her Dad to buy her a Vespa (a trendy scooter useful for NYC transportation in lieu of the subway or cabs or walking.)  Her Dad asked his sensible working-class cop friend Kate Beckett, who said that she wanted a motorcycle at the same age and "worked all summer to earn the

Comments

[docstrange]

I agree with you that in that scenario she did not "earn" it.

She did give up one thing for another, which is closer to work than receiving more gifts, but in terms of earning, there was little-to-nothing earned.

[purlypuss]

For some reason this post just made my day.

I love the clarity of your thinking about money, about resources, about depletable assets. It's so refreshing and bracing!

[allyphoe]

If it helps any, I have that same irrational reaction when you say "I have equity in my house," when the words I would use are "I have basis in my house greater than the mortgage balance." When I say "I have equity in my house," it means "FMV greater than mortgage balance," because I am not a very good accountant. :) (Taxes, sure. Accounting, only when it's homework problems.)

But yeah. I saw someone say "We only buy things when we can pay for it out of our monthly cash flow," then go on to say they'd charged their expensive vacation on a credit card, and what they meant was "we have enough cash flow to cover the increased credit card payment" rather than "we have enough cash flow to pay the balance in full, like we do every month." And it was all I could do not to point out that they weren't paying for it at all, at least not in that month.

[gwendally]

Wait, what do you think people are trying to say when they say they have equity in their house?

If someone said that to me I'd assume they meant that the FMV of their house is greater than their mortgage, period. This would be in the context of "Are you upside down on your mortgage? No, you have equity? How much, it might still be worth walking away."

In certain situations they might mean that their mortgage is less than 80% of the FMV of their house, meaning, they could still refinance and take equity out.

In my case I'm building equity in my house by paying down the mortgage balance. At this point I owe roughly 1/2 the FMV of the house in two mortgages. My goal is to get one paid off in the next few years, reducing my monthly cash flow requirements so that I can direct that towards an island home that I would leverage to buy (leaving me one home unleveraged in retirement.)

[allyphoe]

Ah, then I misunderstand your "having equity in your house doesn't help if your neighbors don't have equity in theirs" comments. Because if you have FMV > debt, you can sell your house and walk away with cash. (I'm assuming that we can agree that FMV means "what you actually could get if you wanted to actually sell your house.")

[gwendally]

Well, FMV is a tricky concept, isn't it? My house is assessessed at $310. I doubt it would sell this month at ANY price. Several houses in my immediate neighborhood are standing empty and unsold. It's not that my house isn't worth it to a buyer, it's that there are no buyers. (On the rare occasion that one sells, though, it sells at what I'd consider a reasonable price: the prices are down maybe 10% around here but they never went sky high in this town anyway.)

Luckily, I'm fine about staying here. If I had to move, though, it doesn't matter that I'm only mortgaged at $150K versus a neighbor being mortgaged at $300K: neither are selling. The only difference is if we have to walk away who loses more, me or the bank? In my case it would be me. In my neighbor's case it would be the bank. Which, I contend, is why it doesn't matter if I have equity, because my neighbors are acting like they don't have equity in their houses and walking away, destroying the market for my house.

[trendywendy]

That really irritates me as well. She didn't earn anything there.