Another way to look at net worth

[RobLJ]

I don't see a correlation, other than for discussion.


Hypothetical comparisons of income streams derived from pensions and SS, to their net worth value makes no sense, because pension and SS recipients can't access a lump sum.

If you're talking about only income, yes.
Note that obg is more like the friend in your example, in reverse, since he/she has--apparently--both significant pension income and significant investable assets. So reducing his/her networth to just investable assets is a little ludicrous, if the point is to compare to someone with only the same level of investments but no pension. Or half the SS income, for that matter. If not, then we're arguing semantics. So then "total assets" might be a better term than net worth, if one insists on ignoring pension and social security in net worth. That makes net worth a largely useless figure, I think, unless one only has investable assets.

 

[haha]

My daddy can beat your daddy!

 

[pb4uski]

I am one of these people who find it difficult to calculate exactly what my net worth is. Questions still remain open regarding the inclusion of annuities, SS, pensions, etc. I have not seen any consistent way of calculating my net worth yet....

There are actually accounting standards for personal financial statements but it is a fairly narrow area of practice that doesn't get a lot of attention. Some annuities would be included as assets in determining net worth and others would not. IIRC annuities that are not life contingent would typically be valued at account value but payout annuities that are not life contingent would be valued at fair value (what one would need to pay today to buy the same benefits or the pv of contractual benefits discounted at a market interest rate).

Interestingly, life contingent payments would not be included so SS and life-contingent annuity and pension benefits would not be included in net worth.

For whatever reason, the accounting standards setters chose to draw the line at life contingency. I suspect they drew the line there due to measurement difficulties in that there can be a relatively wide range of values for life contingent payments.

So while the above would be the official answer if you wanted a personal balance sheet compiled by a licensed accountant, for your own purposes you can do whatever your want of course.

 

[NW-Bound]

I missed this thread when it ran.

I pulled my diary, and it said on 5/13-5/14 I was in [-]Armadillo[/-] Amarillo, on the way to New Orleans in my last RV trip. Actually, I was camping in nearby Palo Duro State Park, thanks to a mention of it here on this forum as a place to visit. But I digress...

The reason I revived this thread is to respond to the following post.

I look at it this way...

If I have 3 eggs in my basket and owe 1 egg...my net worth is 2.
If I have 3 eggs in my basket and am promised 12 eggs...my net worth is 3.
If I have 3 eggs in my basket and owe no eggs...my net worth is 3.

'Course one of those eggs could get cracked...

So, what if I cracked an egg? Does my net worth decrease to 2?

No, M'Lady! I would pull out a pan, and turn it into a sunny side up.

So, is my networth not still 3?

Ummm... Some can argue that due to the added value, that fried egg is now worth one or two cartons of dozen eggs. Don't you have to pay that much when you order it at the nearby coffee shop? Whatever it is, my net worth just got a huge boost, all by adding a bit of butter and some heat.

Now, suppose I put the plate down, sprinkled some Maggi sauce on it, ground some pepper on top (I often substituted that with a few drops of Tabasco sauce, depending on my mood), then proceeded to consume it with a slice of toast.

So, you said "Ah hah, NWB's net worth is now down to 2".

Well, it would be 1.

You see, when I ate fried eggs, whether sunny side up or scrambled, I had to have two. So, I would have cracked a 2nd one to add to the pan.

Conclusion: Simple theoretical things can turn complicated in real life. And we all live in real life.

But NWB on this forum may just be a typing robot in real life, for what you know.

 

[pb4uski]

You obviously have too much time on your hands and need to find a hobby.

 

[MichaelB]

You obviously have too much time on your hands and need to find a hobby.

+1
One option is breakfast cook at a local diner...

 

[NW-Bound]

You obviously have too much time on your hands and need to find a hobby.

+1
One option is breakfast cook at a local diner...

Doesn't this count as a hobby?

And what are ya'll doin', surfin' the forum and readin' my exchange with the lady?

Actually, if I were not still recovering from this major surgery (which I have yet to tell the details), I would be on the road in my RV, camping in places where there's no WIFI. And I still have to go in for another surgery in a few weeks, so you still see me around for a while yet. Probably can't travel for the rest of the year.

 

[W2R]

Doesn't this count as a hobby?

And what are ya'll doin', surfin' the forum and readin' my exchange with the lady?

Actually, if I were not still recovering from this major surgery (which I have yet to tell the details), I would be on the road in my RV, camping in places where there's no WIFI. And I still have to go in for another surgery in a few weeks, so you still see me around for a while yet. Probably can't travel for the rest of the year.

It's too hot to go camping right now anyway. Might as well enjoy the pleasures of our somewhat cantankerous but usually entertaining forum, instead.

I love fried eggs!

 

[Katsmeow]

Naturally, I include home equity in an "estate value" calculation, but that's mainly of interest to heirs. I'm really much more interested in how much money we have at our disposal while still alive. It is certainly a "positive" to have plenty of home equity to use as loan collateral, should a loan be needed. Accountants and business people: What is the name for this potential loan generation value?

It is an asset. You could sell it or borrow against it.

And, it most certainly is part of your net worth and a significant part of it.

It is not, however, part of your investment portfolio.

In my own case I don't count home equity as part of my investment portfolio in determining a withdrawal rate.

I do each month or keep a running total of net worth just to see the overall picture.

For net worth I include all cash, all investment portfolios, equity in house and cars. Technically I should include the market value of all other assets (furniture, clothes, appliances, etc.) but I figure those are small enough in value that it isn't worth the effort to do.

I don't deduct the taxes that will be paid on future withdrawals from tax deferred accounts (I consider those part of expenses) or the costs to sell the house (but mentally I figure those to be about 10% of the future sale price of the house).

 

[bbbamI]

Ahhh..NWB yer a hoot!

Your theories have brought about new revelations to my frazzled brain...

Could my eggs not be chicken eggs but ostrich eggs or even owl eggs. (thus the hoot remark)

If the cracked egg was rotten, would my net worth not be 2?

If the cracked egg produced a chick, would my net worth still be 2?

Of course there would be a new set of dilemmas if a chick came forth. Do I want a pet at this stage of the game...would code enforcement tell me I can't keep it...would it be lonely and all I could do was hope another egg would crack and yield a sibling for company?

If another egg cracked and it produced an alligator, would I accidentally crush the last remaining egg while running away from the alligator?

Hoo wee...this is too much like w*rk...

 

[Amethyst]

Thank you, for introducing the concept of "investment portfolio" versus "net worth." I was groping for that concept but didn't have a name to call it.

I agree about not including market value of belongings, furniture, etc. Ours are so old that the very effort of trying to sell them would negate most of what little they are probably worth!

Then again, how is one supposed to think about the fact that we like our old furniture and other belongings, and they prevent us from having to spend $$ on new furniture and stuff?

Amethyst

It is an asset. You could sell it or borrow against it.

And, it most certainly is part of your net worth and a significant part of it.

It is not, however, part of your investment portfolio.

In my own case I don't count home equity as part of my investment portfolio in determining a withdrawal rate.

I do each month or keep a running total of net worth just to see the overall picture.

For net worth I include all cash, all investment portfolios, equity in house and cars. Technically I should include the market value of all other assets (furniture, clothes, appliances, etc.) but I figure those are small enough in value that it isn't worth the effort to do.

I don't deduct the taxes that will be paid on future withdrawals from tax deferred accounts (I consider those part of expenses) or the costs to sell the house (but mentally I figure those to be about 10% of the future sale price of the house).

 

[NW-Bound]

I just woke up from a nap (had tough time sleeping last night), and saw your post. So here goes.

Your theories have brought about new revelations to my frazzled brain...

Could my eggs not be chicken eggs but ostrich eggs or even owl eggs. (thus the hoot remark)

Of course they could be. And ostrich eggs are superior to chicken eggs, the same way a million British pounds is superior to a million US dollars. I have not seen an owl egg to know its value. Same size as quail egg, perhaps?

Did you get them at Safeway or Walmart? I'd like to try some.

If the cracked egg was rotten, would my net worth not be 2?

Aw shuck! Now not only your net worth is 2, but you also have a stinkin' pan. My condolences.

If the cracked egg produced a chick, would my net worth still be 2?

Of course there would be a new set of dilemmas if a chick came forth. Do I want a pet at this stage of the game...would code enforcement tell me I can't keep it...would it be lonely and all I could do was hope another egg would crack and yield a sibling for company?

Can that be true? I thought the egg has to be fertile (not from farm raised hen), and it has to be incubated. I have never opened my fridge and found a chick in my egg tray.

If another egg cracked and it produced an alligator, would I accidentally crush the last remaining egg while running away from the alligator?

You would not be able to harvest an alligator egg. You would run away first from its mother, who protects the nest until the eggs hatch.


Thus, we have another conclusion: Complicated theoretical problems remain theoretical in real life.

 

[Meadbh]

If you eat your assets / eggs, they are gone, or they turn into you-know-what!

 

[NW-Bound]

If you are never going to eat your eggs, you should look into preserving your eggs like the Chinese "thousand year" eggs. I have not eaten those, but guess they will keep a long time.

 

[Spanky]

If you are never going to eat your eggs, you should look into preserving your eggs like the Chinese "thousand year" eggs. I have not eaten those, but guess they will keep a long time.

They are good with rice congee soup and can be kept for a while.

 

[Larro Darro]

All this talk of eggs reminded me that my sister does eat peacock eggs pretty regular. Not as big as an ostrich egg, but one will make a nice omelet.

Alas her NW {nest egg} has been shrinking. She went from getting 10 or 12 eggs a day down to 2 or 3. Since there were no blood or feathers around, she figured it must be a snake eating them. So last night when she gathered the eggs, she put a couple of golf balls in the nest. Today the golf balls were gone, and I'm guessing a White Oak Snake has a bad belly ache.