Measuring Net Worth

[retire202052]

I tend to follow this calculation. It makes sense to me.

https://www.sapling.com/12011834/fac...sion-net-worth

[Rianne]

The only reason I consider SS and pension is for long term care. I don't consider it today's dollars or as a asset now. We do not have a LTC policy. When all is entered in FIREcalc, those future earnings are considered to give the long term outlook. We can easily afford LTC with our pension and SS benefits + the portfolio as FIREcalc estimates future earnings. I understand, NW is a point in time, like today and will be different tomorrow. But the overall goal is to plan for the future. NW is irrelevant.

[Niuatoputapu]

I don't use Net Worth for anything. As this discussion demonstrates, people use different definitions of the term, so comparisons with others would be challenging. But if I were to calculate, I would use:

Investments and cash (Fido, VG, etc. balances)

plus probable House disposal value (Market Value, less mortgage, less estimated selling commission)

Less any other debt

Equal Net assets before income taxes

Less estimated income taxes on tax-deferred investments

Equal Net Assets

[HenryD]

I measure my net worth against against some simple ratios published in the book "Your Money Ratios" (YMR) by Charles Farrel, although I'm sure he didn't invent the concept. The basic premise is that if you have X times your salary at age Y you are doing a "good enough" job of accumulating, with X increasing as you age. I understand the flaws of using salary rather than projected retirement expenses, and that this is aimed at traditional retirement, but it's one tool in the box.

Turning the calculation around I back out a "YMR salary" based on my net worth and age. If the salary is less than what I make I'm behind, if it's more I'm ahead. Prior to my divorce my YMR salary was way ahead of what I was actually making, so I was ahead. Five years later and remarried it's way behind our combined income, but as I project our savings goals out to our FIRE date the YMR salary should be higher than it ever was.

[Gumby]

Quote:

Originally Posted by NW-Bound >>> Please note that the OP was asking about comparing or benchmarking your networth against your peers. It's not just about knowing what you have. >>>

If you absolutely must compare yourself to others and you live in the U.S., the Census Bureau can help with that. Download the Excel spreadsheet found here.

https://www.census.gov/data/tables/2...ownership.html

I personally find it to be a fool's errand. There will always be many people with both more and less than I have. The only relevant question is whether I have as much as I need, and the net worth of other people cannot possibly answer that question.

[pacergal]

Quote:

Originally Posted by Ronstar I calculate net worth like I learned in my college accounting classes and how we did it in business in preparing the balance sheet. Net worth = total assets minus total liabilities. A snapshot at a specific point in time. It’s a simple as that. So yes, the house is included. A balance sheet can be prepared for an individual, a household, a company - any entity that has defined assets and liabilities. Pension, income, ss has nothing to do with the balance sheet. Those are income statement items.

+1, same here.
I only check net worth maybe once yearly, if even that.
How I compare with peers is not that important to me.

[Andre1969]

This might be sloppy accounting on my part, but I don't really pay attention to my net worth. The only figure I really pay attention to is investible assets (401k, IRAs, after tax mutual funds, online brokerage, checking account, etc).

I do have equity in the house, as I put 25% down. But, I figure that doesn't really do me much good in the short term, as it's not money I can easily live off of. I'd have to either take out an HELOC, refinance and take cash out, or sell the house and downsize.

When I've run my FireCalc predictions in the past, I'd run two sets of numbers. One would presume full SS benefit, for whatever given year I retire. The other would presume NO SS benefit at all. That might be a bit catastrophic, as I'm sure SS will be there, just perhaps not full benefit. But according to the scenarios I've run the difference between full SS and no SS is usually only 2-3 years. For instance, assuming no cuts to SS, and I start claiming benefits at 62, FireCalc says I could retire now, at age 49, on $75K per year with a 94.9% chance of success. With no SS benefit at all, I'd have to wait until age 51 (93.9%) or 52 (96.9%) to get a similar chance of success.

[brett]

Net worth did not play a significant part in our decision to FIRE.

We saw no point in adding up the value of our home, automobiles, etc. Had our plan been to sell our home in order to fund our retirement the calculation would have changed.

Our focus was on income stream, ie pensions, and our equity base that provided passive income. All adjusted for after tax, inflation, and changes in lifestyle.

[Ronstar]

Quote:

Originally Posted by Andre1969 This might be sloppy accounting on my part, but I don't really pay attention to my net worth. The only figure I really pay attention to is investible assets (401k, IRAs, after tax mutual funds, online brokerage, checking account, etc).

+1. Not sloppy accounting IMO. I never compute my net worth anymore. I used to give the bank a personal financial statement with net worth in order to get business financing, putting in estimated numbers for house, etc. But what's the point in figuring a net worth based on estimates?

IMO, the only number that matters is the investible assets.

[NW-Bound]

Quote:

Originally Posted by NW-Bound >>> Please note that the OP was asking about comparing or benchmarking your networth against your peers. It's not just about knowing what you have. >>>

Quote:

Originally Posted by ERD50 If my definition of "my peers" is "anyone with the same net worth as I have", the question answers itself! -ERD50

Knowing what is possible can be helpful. Some years ago I had a free subscription of Money Magazine. I found personal stories interesting. For example, there was a doctor who made $200K in that pre-2000 time, yet he and his wife spent all that he made, and he had no savings.

For people with more modest income, if they learn that someone with the same paycheck can manage to retire early, perhaps they will not say that it is impossible.

Again, the range of net worth is huge for people making the same income, or in the same occupation. I think I am not doing too badly for my circumstances. Of course I still want more because it feels good.

[flyingaway]

Networth is a number you can use to compare with your friends, so you know who is richer. Just a joke.
I am only interested in my investible assets, which I record at the end of every month to see my progress. I could easily add the value of my paid-off house, which did not seem to have changed in 13 years.

[kcowan]

I track net worth to define what will be left when we liquidate our holdings for the heirs, including charities. It has been growing every year for the last ten after all living expenses.

We also use it to make advances on inheritances.

[NW-Bound]

Quote:

Originally Posted by Gumby If you absolutely must compare yourself to others and you live in the U.S., the Census Bureau can help with that. Download the Excel spreadsheet found here. https://www.census.gov/data/tables/2...ownership.html I personally find it to be a fool's errand. There will always be many people with both more and less than I have. The only relevant question is whether I have as much as I need, and the net worth of other people cannot possibly answer that question.

Exactly right. I know that I have more than I need, but less than what I want. I don't need to know about my neighbors or my friends.

I do compare my progress with the S&P and some other benchmarks. You have to, if you are an active investor.

[imoldernu]

Quote:

Originally Posted by Gumby If you absolutely must compare yourself to others and you live in the U.S., the Census Bureau can help with that. Download the Excel spreadsheet found here. https://www.census.gov/data/tables/2...ownership.html I personally find it to be a fool's errand. There will always be many people with both more and less than I have. The only relevant question is whether I have as much as I need, and the net worth of other people cannot possibly answer that question.

Thanks for the link... I couldn't find it. A matter of curiosity. Not being in the first percentile, I wondered what the median net worth was for people my age, and that money doesn't have the same meaning as it did when I retired. 31 years ago, my salary was $48K... That seems low compared to today's values. While still not really high, adjusted for inflation that would now be $120K.

A second part of that Government Census page, is particularly interesting to me, as it gives some insight into "where" the net worth lies.
So.... where is the net worth?
House
Bank
Annuity
College savings
Vehicles
Cash Value Life Insurance
Real Estate
Ownership of business
Checking account
Stock Market
Rentals
Bonds
IRA
Jewelry/Marketable items, coin or stamp collection etc.

It's when the net worth is broken down and compared to the statistics that providess some insight into the what and why. Net worth doesn't necessarily translate into liquidity. For instance.... savings for a few students further education could easily be many thousands of dollars, that won't be there at retirement age.

Personally, I found the "by age" part of the chart to be most interesting, not just for the median net worth part, but for some of the other major assets... ie. house... LTC, annuity.

It would be interesting to see how the $1,000,000 theoretical amount required to retire, would be broken down by asset class.

A little different from just looking at personal net worth totals on a periodic basis.

[Sunset]

Quote:

Originally Posted by NW-Bound I know that I have more than I need, but less than what I want. I don't need to know about my neighbors or my friends. I do compare my progress with the S&P and some other benchmarks. You have to, if you are an active investor.

Since I have some low earning investments, like a rental that is not appreciating rapidly, and some CD's , I don't even try to see what I'm getting vs S&P.

I do calculate net worth each year, and it's nice to see it's been rising faster than inflation, which is my main concern to have more spending than last year.

[NW-Bound]

The comparison has to be on the total return basis, meaning the rental income must be included (minus expenses), and not just the appraised value of the property.

I never bother to include the value of my 2 homes. They cost me money, and do not appreciate all that much.

I look at the number at the bottom left of my Quicken screen, which sums up all of my liquid accounts, from the checking account to the HSA, various brokerage accounts, 401k's and IRAs, and Treasury Direct accounts. It's all there. I don't have to do any work to know exactly what I have.

[HI Bill]

As others have said, "net worth" = assets minus liabilities, by definition.

My financial spreadsheet shows the marital "Net Worth" (including the home), and it shows the "Net Investable Assets", which is much more useful in determining potential RE income. I find it useful to track both, as it gives me an idea of the distribution of household value versus retirement assets to be used for income. In the future, a condo will be sold, and another purchased. If the new property is more expensive, then the ratio of NIA to NAV changes, and there's less NIA to tap for expenses. Part of the pie.

While I don't have college savings plans, I wouldn't count those in either of the above, as the money is not yours to spend (if it's for the kids). I also don't count pensions or SS, as they're monthly income, and you don't have them until you file.

[Offgrid Organic Farmer]

Quote:

Originally Posted by imoldernu How do you measure your net worth?

Net Worth is Assets minus liabilities.


Gender has no bearing on Net Worth.
Household size has no bearing on the conversation.
Age has nothing to do with it.
Education is not a factor.

[RobbieB]

Quote:

Originally Posted by Offgrid Organic Farmer Net Worth is Assets minus liabilities. Gender has no bearing on Net Worth. Household size has no bearing on the conversation. Age has nothing to do with it. Education is not a factor.

I don't think so

Men have more than women

You have more as you age

Education has a positive effect on net worth

[Oz investor]

i use liquid assets ( the share portfolio + availbale cash ) minus liabilities .

the properties are worth whatever i sell them for , BUT i have no intention of selling them so the income goes into the cash part and the costs in the liabilities part .

i don't need to impress anyone ( and so i am still single ) nor look rich , so less likely to be mugged , or conned , or married , and don't like parties much ( except to stay in a corner and study human behaviour ) so don't normally get invited ( so i have plenty of reseaech and education time )

i would rather just move towards doubling my current liquid assets , than calculate a running total

boring but true

the government makes regular estimates of my net worth , and that helps keep somone in a pointless job ( distorting GDP figures ) , they seem to care more than i do