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Old 11-01-2013, 10:49 PM   #41
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Just curious.. When you all talk about NW do you typically include equity in your primary residence, or is it just invested amount? Equity could be a squishy thing if LTV is high like 80 or 90%, but when the house is almost paid up or even more than half paid up, can you still ignore it completely?
No, I consider my home separately. Once I owned my home free and clear I became focused completely on investable assets.
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Old 11-01-2013, 10:57 PM   #42
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Just curious.. When you all talk about NW do you typically include equity in your primary residence, or is it just invested amount? Equity could be a squishy thing if LTV is high like 80 or 90%, but when the house is almost paid up or even more than half paid up, can you still ignore it completely?
You are obviously a newcomer.

The debate of whether to include RE in one's portfolio has been revived every so often here. Another one is whether it is better to carry mortgage or not, as one can often invest at a higher return rate than the mortgage rate.

Regarding real estate, usually people still working on reaching FI like to include it. But when one has reached early retirement, the home tends to be looked at as an ongoing expense that must be funded out of one's portfolio return. I myself do not include my homes in my NW. Their upkeeping does show up in my Quicken screen though.
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Old 11-01-2013, 11:15 PM   #43
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If you don't own a home then I assume you include the future rent payments as an unfunded liability and subtract that lump sum from your net worth? This is the only way I could justify not including a home's net value as an asset in net worth calculations.
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Old 11-01-2013, 11:38 PM   #44
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Or I would have to include rent in my withdrawal rate from the investments, which means the portfolio would have to be higher to accommodate the rent without home ownership.

These are just different ways of looking at it. The way I look at my homes, I do not plan on selling them, but I need to get the cash flow for sustainment. So, I tend to get more focused on the expenses for upkeep, and do not look at the home values that often.
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Old 11-02-2013, 01:25 PM   #45
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Just curious.. When you all talk about NW do you typically include equity in your primary residence, or is it just invested amount? Equity could be a squishy thing if LTV is high like 80 or 90%, but when the house is almost paid up or even more than half paid up, can you still ignore it completely?
Nope. When I talk NW, I talk just "liquid" assets - something I could spend within a week. I like the term "augmented NW" when I include home equity. You need a place to live, thus the equity in your home is meaningless until you can do something (other than borrow against it) with it. That's just me.

That doesn't mean you can't count your home as an "investment", since when I sell this place I expect to have made a few 100K on it. The problem is, if I never sell the house, that equity is effectively meaningless. Owning my home when I retire would just reduce my expenses, not add to my net worth.
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Old 11-02-2013, 01:37 PM   #46
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For the Nth time....



Investopedia explains 'Tangible Net Worth'
In terms of a consumer, tangible net worth is the sum of all your tangible assets (cash, home, cars, etc) less any liabilities you may have.






People are entitled to use any measure they wish in planning their financial lives. Excluding one's home means that one is using not Net Worth but Investment Portfolio. It's a perfectly reasonable variable to use based on the assumption that one's home will not be sold. But the fact is that a home (minus any mortgage owing) is a financial asset and by any country's GAAP (generally accepted accounting principles) MUST be included in the definition of Net Worth.

Whenever this topic comes up on the forum, there is a variety of interpretations of the term "Net Worth". No valid comparisons can be made unless there is agreement on the definition of the term.
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Old 11-02-2013, 01:42 PM   #47
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I don't include the value of my home in my NW but I did subtract the balance of my mortgage (when I still had one - never really had other debt) from my NW.

I view it as psychological investing. I tell people (in real life) who are still accumulating for retirement that if having a larger net worth trips their trigger and inspires them to continue saving then they should include the home equity. For myself, the opposite was true. I needed a lower NW to inspire me to continue investing.
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Old 11-04-2013, 06:59 AM   #48
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I consider my paid-off home part of my net worth. But net worth is very different from the portfolio that must provide my future cash flow, and from which withdrawal rates, etc. are calculated from. That portfolio includes only very liquid investment assets.

On the spreadsheet in which I track net worth I also break assets down into 'liquid,' moderately liquid' (things like automobiles), and 'illiquid' (things like real estate) categories.

Net worth is really little more than an interesting curiosity. Portfolio number is the thing that really matters.
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Old 11-04-2013, 07:14 AM   #49
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Gee, I missed out on all the fun. After I no longer had my "important" job with Megacorp, I pulled together all of my finances after lurking at this forum for a few months. Up until then I had always been debt free except the mortgage and maxed out my company thrift plans. Other than that I just went with the flow, worked 60 hrs/wk and raised three kids with DW. My earliest "formal" accounting had my NW (without house) over $1MM. That prompted my realization that even though I had been put at the curb by Megacorp I was FI and could have actually retired then.

HI concerns and the final years of my kids college prompted me to continue gainful employment. I finally realized my 90% asset allocation put an unnecessary risk or as William Bernstein wrote in one book, "When you've won the game it is time to stop playing." I went to 60% equities in August 2007. That helped dampen the hit but it still hurt. Fortunately, it has all come back and more. In 2010 I went down to 40% equities.

So, why am I still coming in here?
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Old 11-04-2013, 07:31 AM   #50
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I include my home's value in my net worth when I'm bragging, but for retirement planing, I exclude it.
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Old 11-04-2013, 09:15 AM   #51
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I include my home's value in my net worth when I'm bragging, but for retirement planing, I exclude it.
Well, I do not gloat about NW to any relative and friend, and only "hint" about it here. But at the end of the month, after my wife has paid all bills and I have to refill the checking account, all I see is money outflow.

However, Meadbh is right. NW does include everything, meaning RE, and also my cars and the RV no matter how little they're worth. Investable assets are a retiree's lifeblood however, and the other "stuff" does not really add but draw from them.
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Old 11-04-2013, 10:31 AM   #52
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Well, I do not gloat about NW to any relative and friend, and only "hint" about it here.........
You are missing a lot of fun, then. What is the point of having a bunch of money if you can't brag about it? (I'm pulling your leg.)
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Old 11-04-2013, 12:16 PM   #53
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The problem with gloating is that there are always people with so much more than I have, going all the way up to Warren Buffett.

But back on the "stuff" that does not add but subtract from your stash, I am glad I only have a small motorhome, bought used at that, and not a boat or a plane. Have heard that those things can "eat" more than they are worth. And of course there are things that can really eat, like Arabian horses. Even a home can drain your coffer in taxes and maintenance.

Oh, money, money... How I like to see my Quicken bottom line... The gift that keeps on giving. In one click, I can see how much it has grown, in dividends, in capital gains. I look at it this way, and that way, and I am so pleased.

It's just so nice to be invested in a bull market. But of course everybody here knows that.
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Old 11-04-2013, 02:10 PM   #54
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It just doesn't make sense to not include a home in both net worth and invested assets. I could sell my home tomorrow for $200,000 to one of those "we buy homes outfits" (even though it is worth $350,000). I should at least include that $200,000 figure in all calculations.
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Old 11-04-2013, 03:04 PM   #55
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I consider my paid-off home part of my net worth. But net worth is very different from the portfolio that must provide my future cash flow, and from which withdrawal rates, etc. are calculated from. That portfolio includes only very liquid investment assets.

Net worth is really little more than an interesting curiosity. Portfolio number is the thing that really matters.
+1
NW number is perhaps a personally fun number at best. Beyond that, I tend to avoid any "my pen is bigger than your pen" discussions (although I do have a very smart looking pen .

I too include the substantial equity of my debt free home for reasons I've posted elsewhere (price protected R/E in a nauseatingly trendy, highly desirable Los Angeles neighborhood, intention to downsize considerably in near future, future housing needs already accounted for, etc). This is a highly personal decision, and one undertaken only after considering many factors particular to my situation.
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Old 11-04-2013, 03:19 PM   #56
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I am sure everyone here calculates net worth the same (it is not complicated).

How one chooses to categorize the components is based on how they like to think or plan.
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Old 11-04-2013, 06:23 PM   #57
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For the Nth time....



Investopedia explains 'Tangible Net Worth'
In terms of a consumer, tangible net worth is the sum of all your tangible assets (cash, home, cars, etc) less any liabilities you may have.





People are entitled to use any measure they wish in planning their financial lives. Excluding one's home means that one is using not Net Worth but Investment Portfolio. It's a perfectly reasonable variable to use based on the assumption that one's home will not be sold. But the fact is that a home (minus any mortgage owing) is a financial asset and by any country's GAAP (generally accepted accounting principles) MUST be included in the definition of Net Worth.

Whenever this topic comes up on the forum, there is a variety of interpretations of the term "Net Worth". No valid comparisons can be made unless there is agreement on the definition of the term.
another +1

We include it - it's an asset, it has value and (although we don't intend to rely on it) we can tap that value to support ourselves should the need arise.

Excluding a home from a net worth calculation is like ignoring SS or defined pension entitlements
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Old 11-08-2013, 08:38 AM   #58
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It just doesn't make sense to not include a home in both net worth and invested assets. I could sell my home tomorrow for $200,000 to one of those "we buy homes outfits" (even though it is worth $350,000). I should at least include that $200,000 figure in all calculations.
Exactly. I've never understood the argument that an asset with a certain (estimated) value that could be converted to cash should not be included in your net worth because you are using it functionally. Heck I could get a home equity loan and have it formatted as a pile of cash, if loan cancels out the home would that make my net worth increase just by virtue of changing the format of the asset?

If I have one of those old-school Disney stock certificates worth a million bucks and it is framed on my office wall, that would count too even if I'm using it as decoration.
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Old 11-08-2013, 08:46 AM   #59
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I keep a sack of $100 bills and use it as a door stop to my garage, so I don't include that money in my net worth.
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Old 11-08-2013, 09:11 AM   #60
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For the Nth time....



Investopedia explains 'Tangible Net Worth'
In terms of a consumer, tangible net worth is the sum of all your tangible assets (cash, home, cars, etc) less any liabilities you may have.






People are entitled to use any measure they wish in planning their financial lives. Excluding one's home means that one is using not Net Worth but Investment Portfolio. It's a perfectly reasonable variable to use based on the assumption that one's home will not be sold. But the fact is that a home (minus any mortgage owing) is a financial asset and by any country's GAAP (generally accepted accounting principles) MUST be included in the definition of Net Worth.

Whenever this topic comes up on the forum, there is a variety of interpretations of the term "Net Worth". No valid comparisons can be made unless there is agreement on the definition of the term.
Or you can just be specific when you're talking about something. For example, "I have >$500,000 in my portfolio."

I know this: I don't care enough to get upset about it. If you all want to talk about your NW including the Zillow estimate of your house, have at it. I'm worried about invested assets to retire. When I sell my house and pull the equity, THEN I'll talk about that cash. There are plenty of people out there of the mind that your home is not an asset, but an expense, so declaring something a certain way on this forum isn't going to change much (unless you just make it a forum rule: THOU SHALT INCLUDE HOME EQUITY IN YOUR NET WORTH.)
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