Net worth change since 1-1-2012, the real question !

[HFWR]

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Originally Posted by REWahoo All you scorekeepers need to be sure you include the loose change under your sofa seat cushions...

Nothing but food crumbs...

[JoeWras]

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Originally Posted by MichaelB Sould net worth and YTD returns include deferred tax liabilities? This is a great question, right up there with "pay off the mortgage" and has the potential to keep us busy for years.

I calculate both. The one I look at depends on how "rich" I want to feel.

Once per quarter, I use quicken to take the value of IRAs and 401ks and then create a 45% liability on it (steep, but cautious). I then adjust the liability.

Quicken always reports as "net worth" the number with the liability, but I can also easily get the number without.

Nice just having both in mind, but this is something I don't sweat over too much.

... Still working on figuring out my year over year change ...

[NW-Bound]

Who cares about loose change under sofa seats? I will add that after I account for the new 6 tires mounted on my MH. They are not as expensive as those on a class A, but surely are the most expensive Michelin I have ever bought.

Oops. Would need to depreciate them over time too. Hmm... Does Quicken do that for me? This is getting too complicated.

On the other hand, keeping track of the RV tire values means I will be reminded of the cost of replacement every few years, and my bank account takes a hit. Ka ching! Arghhhh!!!!

[audreyh1]

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Originally Posted by REWahoo All you scorekeepers need to be sure you include the loose change under your sofa seat cushions...

I forgot to add in the $300 I keep in my firesafe for emergencies!

But wait - that didn't appreciate in 2012, so it would just be a drag on my % gain in net worth. And adding in the value of my vehicles would have lowered ithe % gain as they lose value every year.

[audreyh1]

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Originally Posted by NW-Bound Who cares about loose change under sofa seats? I will add that after I account for the new 6 tires mounted on my MH. They are not as expensive as those on a class A, but surely are the most expensive Michelin I have ever bought.

LOL! Our RV tire replacement buy was high enough, that a Goodyear rep took our call personally, and made sure the tire shop got the tires after their distributor told us they weren't yet available. She told my husband after she got back to us (after arranging the deal) that it was a nice sale for the tire shop. And we got tires with all same date codes less than a month old - sweet!

Hmmmm - but I haven't been depreciating my RV tires!

[ziggy29]

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Originally Posted by audreyh1 I forgot to add in the $300 I keep in my firesafe for emergencies! But wait - that didn't appreciate in 2012....

As opposed to the money in savings, which appreciated 0.000023%? (Thanks Ben!)

[audreyh1]

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Originally Posted by MichaelB Sould net worth and YTD returns include deferred tax liabilities? This is a great question, right up there with "pay off the mortgage" and has the potential to keep us busy for years.

Perhaps a subject for endless debate, but I don't believe that net worth calculations normally include possible future expenses.

Since my annual withdrawal value or budget already includes the taxes I have to pay each year because I sold some assets, it doesn't make a difference to me. In other words, my annual budget already includes taxes I am likely to pay, so I can safely compare it to my liquid assets at their pre-tax value.

[REWahoo]

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Originally Posted by audreyh1 LOL! Our RV tire replacement buy was high enough, that a Goodyear rep took our call personally, and made sure the tire shop got the tires after their distributor told us they weren't yet available. She told my husband after she got back to us (after arranging the deal) that it was a nice sale for the tire shop. And we got tires with all same date codes less than a month old - sweet! Hmmmm - but I haven't been depreciating my RV tires!

Tire replacement cost was one of the reasons we sold our Class A. Hard for a cheap frugal guy like me to stomach the $3,000+ cost to replace them every five years or so.

Nice that you were able to get tires still warm from the mfg. plant....

[NW-Bound]

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Originally Posted by audreyh1 Perhaps a subject for endless debate, but I don't believe that net worth calculations normally include possible future expenses.

Wouldn't that be like running FIRECalc with expenses set to 0?

Oh boy, those squiggly lines went off scale! NICE!

PS. About those "warm" RV tires, I am sure they smelled really good when they were new, but the aroma faded quite quickly though.

[MichaelB]

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Originally Posted by audreyh1 Perhaps a subject for endless debate, but I don't believe that net worth calculations normally include possible future expenses. Since my annual withdrawal value or budget already includes the taxes I have to pay each year because I sold some assets, it doesn't make a difference to me. In other words, my annual budget already includes taxes I am likely to pay, so I can safely compare it to my liquid assets at their pre-tax value.

Net worth is a balance sheet calculation while budget is an "income and expense" or P&L. If net worth is assets minus liabilities, deferred tax on income and unrealized capital gain is very much a liability.

[mpeirce]

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Originally Posted by grasshopper I know I will be whipped, but do you subtract taxes from tIRA's and 401k's balances ? You don't really own that money, and how do decided what tax rate to use.

That's a tricky one since you don't really know what your tax rate will be when you tap those funds (if you ever do). It might be worth taking a guess at the rate and subtracting that out if you have a large chunk of your assets in tax deferred accounts. Another option is to just view those taxes as an expense and built it into your retirement budget. You still probably have to guess on the rates though.

I personally still have a significant amount of appreciated company stock that I'm selling over time. On my spreadsheet, I subtract 19% (federal 15% + state 4%) from the gains I have in it to account for the taxes. This is mostly a hold over from the last couple of years before I retired when I was still holding company options and ESPP shares - the taxes on those where significant.

Of course if we died tomorrow the kids get a big step up in basis, but I'm not taking that into consideration for MY planning.

[KingB]

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Originally Posted by ziggy29 As opposed to the money in savings, which appreciated 0.000023%? (Thanks Ben!)

Is that before or after tax?

[audreyh1]

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Originally Posted by MichaelB Net worth is a balance sheet calculation while budget is an "income and expense" or P&L. If net worth is assets minus liabilities, deferred tax on income and unrealized capital gain is very much a liability.

But you don't know what the taxes on that unrealized cap gain or tax deferred income is going to be, and it might be zero depending on any year's given tax bracket indexed to inflation, and especially if your heirs get their hands on it.

But seriously, to each his own as we all have different situations, tax-wise. And in terms of a year-to-year % net worth gain calculation should be a wash, assuming you use the same tax reduction multiplier for both years.

[JoeWras]

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Originally Posted by audreyh1 But you don't know what the taxes on that unrealized cap gain or tax deferred income is going to be, and it might be zero depending on any year's given tax bracket indexed to inflation, and especially if your heirs get their hands on it.

Yes, true.

That's why I choose 45% (think 36% fed, 9% state) as a worst case scenario.

It is just a "comfort number" for me. "What if I had to sell it all today, what would happen?"

But I also track the actual assets without this liability when plugging into equations for future growth (like firecalc) since I have the ability to put that money to work now. Likewise, I include a yearly tax estimate in my expenses in firecalc that is not as severe as 45%.

[MichaelB]

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Originally Posted by audreyh1 But you don't know what the taxes on that unrealized cap gain or tax deferred income is going to be, and it might be zero depending on any year's given tax bracket indexed to inflation, and especially if your heirs get their hands on it.

You don't know the future taxes may be but you do know current rates and calculate your current tax liability. Same for the heirs.

For YTY calculations it's not really a wash. Tax deferred portfolios are subject to ordinary rates when funds are withdrawn, which adjust to inflation. Taxable portfolios may be subject to capital gains rates, which do not take into consideration inflation.

[audreyh1]

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Originally Posted by MichaelB You don't know the future taxes may be but you do know current rates and calculate your current tax liability. Same for the heirs.

And you know exactly how much of each account/asset you are going to withdraw each year and which year and can calculate back to today's dollars?

My heirs will owe essentially nothing.

[skyvue]

Whether to discount amounts in the 401k in your Net Worth calculation was a question I thought of while trying to sleep at 4:00 am this morning!

I have employee stock options I can cash in once they are vested. I "discounted" them at 65% to account for the real value I have realized when exercising them in the past.

However, most of my money is in my 401k. I did not discount that because I find it impossible to estimate! Actually, that is a lie. I don't discount those funds because it would drop my Net Worth below a magical number I crossed late last year!

But in all seriousness, I am hoping to withdraw the bulk of those funds with very careful tax strategies to try to minimize the tax I pay on those funds. Currently thinking a 72t will initially make sense to pull "some" out before it is actually needed so I don't spend all the money outside the 401k, then have to rely on 401 withdrawals totally.

[FUEGO]

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Originally Posted by clifp I just go by what the county assessor office says unless there is strong evidence that it is wrong. You also could also you a source like zillow.com or trulia.com. These aren't perfect but they aren't bad. I just ran zillow on the 5 properties I ran they all were reasonable estimates. I don't include transaction cost although you could certainly make the case that for real estate it makes a material differences.

I use zillow in general. Then take 95% of the value zillow gives, to account for a realtor commission. Except this go round of updating the quarterly net worth statement, I didn't follow zillow exactly since they said my house dropped 15% since last quarter but my (nearly identical) neighbor's house stayed the same. So I bumped my value down by a few thousand just in case but not all the way down to what zillow says.

It's an estimate, and we estimate things all the time. Not sure why house prices would be inestimable.

[FUEGO]

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Originally Posted by REWahoo All you scorekeepers need to be sure you include the loose change under your sofa seat cushions...

Loose change? I have heard about this thing called "cash" that people of a certain era used, and the history books indicate change would be given back at the completion of a transaction, but I didn't know cash was still used today.

[FIREd]

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Originally Posted by REWahoo All you scorekeepers need to be sure you include the loose change under your sofa seat cushions...

But I do kind sir. Money is money. DW will never walk by a penny on the street without picking it. That's how we roll here (how we roll the coins of course).