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I May Have Reached a Milestone, But What do You Think?
Old 05-15-2013, 09:00 AM   #1
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I May Have Reached a Milestone, But What do You Think?

After many years of living below my means, I may have passed over the millionaire hurdle. Kudos to me- LOL. Money is funny, it's here one day and gone the next.

If I include both the value of the mortgage on my home plus the estimated value of my home, I then surpass $1,000,000.

If I only include the value of the mortgage in the net worth equation, I have not reached the $1,000,000 mark.

Some people say the house is an asset with value and it should be included. Others say that they do not consider the value of their home in their net worth because regardless of how (rent/own) they need a place to live.

I'm not sure why, but psychologically for me, reaching the millionaire mark seems significant, although I recognize that $1,000,000 today is not what it was yesterday.

I still need to save and invest for FIRE, so I don't want to lull myself into complacency.

What do you think?
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Old 05-15-2013, 09:09 AM   #2
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In my mind net worth should include the value of your home minus what you owe on it.

Think of it as what would be the pile of money left if you died today and all of your assets were sold for cash.

Congrats on your milestone!
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Old 05-15-2013, 09:24 AM   #3
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I agree with Fishingmn on the net worth calculation.

And while you say $1M may not be what it was yesterday, it's still a VERY significant milestone that, unfortunately, most won't reach. Good on you!
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Old 05-15-2013, 09:27 AM   #4
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Congratulations on your Millionaire status !
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Old 05-15-2013, 09:47 AM   #5
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In my mind net worth should include the value of your home minus what you owe on it.

Think of it as what would be the pile of money left if you died today and all of your assets were sold for cash.

Congrats on your milestone!
I agree with this.
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Old 05-15-2013, 04:16 PM   #6
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Look at it this way...there is a great deal of difference between a $1million dollar home with an outstanding mortgage balance of $900. and the same home with an outstanding mortgage balance of $900,000.
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Old 05-15-2013, 04:28 PM   #7
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I'm not sure that it matters that much whether you include your home's value in your net worth or not. If you are planning to keep living in the same house after you retire, then what it is worth will not have any significance to the question of how much you can withdraw from your portfolio for living expenses. If you are planning on selling it one day and buying a much cheaper home or renting, then including it in your net worth figure might be of some value.

If you just want to be able to call yourself a millionaire, then go ahead and include it

I hope you see my point though.
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Old 05-15-2013, 04:35 PM   #8
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I include the value of my home minus what is owed for net worth. But I use just my liquid assets for what I run my SWR against. So for your death net worth put in the house, for your living net worth just liquid assets.
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Old 05-15-2013, 04:41 PM   #9
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Originally Posted by nico08 View Post
I'm not sure why, but psychologically for me, reaching the millionaire mark seems significant, although I recognize that $1,000,000 today is not what it was yesterday.
Congratulations!

Nothing's what it was yesterday, but I remember my first $1 as a kid, first $10, first $100, first $1000, and now first $10,000. Every extra zero seems to feel fantastic, and you've gone and added six on there!

I'm with others in that I'd count the home value minus what you owe
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Old 05-15-2013, 05:16 PM   #10
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I count our home value because it is an asset we will use towards our retirement. Our "magic" number includes what I expect to pay for the replacement. I keep an eye on real estate values in the area we plan to retire to and adjust both numbers as necessary.
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Old 05-15-2013, 05:21 PM   #11
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congrats!

If a paid off home is not included in net worth, then a person who rents should subtract (life expectancy in months left times monthly rental) from their net worth.

You rarely hear of someone doing this though.

It will be a very important point if Obamacare ever decides to do means testing based on net worth. Would Bill not qualify for a subsidy if he has $500K in the bank and rents a home worth $500K on the market while Sally, who owns a $500K home outright and has $0 in the bank does? Technically they both have exactly the same net worth if they liquidate their assets.
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Old 05-15-2013, 05:23 PM   #12
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Congratulations, many never reach that milestone. Their will be others on you're journey.
Job well done.
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Old 05-15-2013, 05:25 PM   #13
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Come'on now let's just face the facts. You are a millionaire.
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Old 05-15-2013, 07:23 PM   #14
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Hi Major Tom. Yes I understand your point. I play with the idea of staying where I am and not including the house in my net worth and downsizing, selling the house, and then including it as part of the amount that I could pull 3 to 4 percent from.
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Old 05-15-2013, 09:03 PM   #15
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By definition net worth should include the value of your home (less mortgage). But I don't like to include it because (1) there is significant difficultly in pricing a house and (2) my equity is relatively small compared to investable assets.
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Old 05-15-2013, 10:05 PM   #16
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Home equity definitely is part of NW. And you don't have to sell you house to tap it.
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