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You wrote, Why would a question about cash flow and debt ignore the principal of a mortgage? Most people pay PITI to their mortgage company.

Since the original question was constrained to cash-flow, you are correct. However, as an outside observer I'm less interested in your cash-flow than your expenses relative to your income.

From an accounting perspective, principal payments are not part of your expenses - they're an asset transfer and in the case of a house, they amount to personal savings.

For instance, a person that's "treading water" may be doing so only from a cash-flow perspective. However, they may be making payments well in excess of their new obligations and this could be resulting in substantial wealth-building.

Obviously the reverse could also be true. They could be loosing ground because say their home is financed by a reverse-amortization loan so part of the finance charges are being recapitalized each month.

In any case, their cash-flow tells you nothing about their long-term financial prospects - and that's what I would really be interested in. Are you gaining ground? Or loosing it?

Clearly you need to know whether or not you have a cash-flow problem. But personal finance only begins there...

- Joel
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