Chapter 9: Tracking Property and Debt 199
Setting up Asset and
the amount being borrowed (the principal), the interest rate, the length of the
loan, the number of payments, and how much principal and interest you fork
over with each payment.
Most loans amortize your payoff: The monthly payment remains fixed, but the
ratio of principal to interest changes. Early in the loan’s life, your payments are
mostly interest and very little principal—which is great for tax deductions. By
the end, your payments go almost entirely toward paying off principal. Con-
stantly changing allocations sound like a tracking nightmare, but Quicken easily
handles amortized payments. It calculates your loan amortization schedule,
assigns the principal and interest in each payment to the appropriate categories
or accounts, and even handles escrow payments (the amounts that your mort-
gage company collects in advance to pay property taxes and property insurance
premiums when they come due), so you conserve your brain power for more
• Equity and net worth. The equity you hold in an asset is the asset’s value minus
the balance you owe. For example, if your house is worth $200,000, and the bal-
ance on your mortgage is $125,000, you have $75,000 in equity in your home.
Net worth is the big picture of equity—the value of all your assets minus the
balance of all the money you owe. Net worth is a key measure of your financial
health. For example, you might own houses, cars, boats, and other toys that are
worth $4,000,000. But if you borrowed $3,950,000 to buy them, you’re still a
financial pauper with a net worth of only $50,000. On the other hand, a couple
who have a house, car, and retirement fund with a combined value of $850,000,
and a mortgage balance of only $25,000 are well on their way to millionaire
status with a healthy net worth of $825,000.
By linking loans in Quicken to the corresponding asset accounts (linking your
mortgage with the asset account for your home, for example), you can see how
much equity you have in each asset, as well as your overall net worth.
Setting up Asset and Liability Accounts
Quicken makes it easy to create asset and liability accounts. For example, if you create
a vehicle asset account for the new car you bought with the help of a car loan, then
the program asks if you want to set up a loan and liability account to go with it.
Types of Asset and Liability Accounts
Quicken includes three types of accounts for your assets, and one for liabilities:
•Ahouse account can represent any type of real estate (house, condo, whatever),
whether you have a mortgage or own it free and clear. When you create a house
account, you specify the original purchase price and the current value. As time
passes, you can also adjust the house account balance to reflect the house’s
increase in market value or improvements you make—like that commercial-
quality kitchen with the six-burner stove and trash compactor.