Measuring Net Worth

[traineeinvestor]

I use the estimated or actual value of total saleable assets minus liabilities. Keep it simple. It changes daily anyway.

This.

With the modification that I make a monthly accrual for taxes and longer term expenses such as home repairs, taxes and a miscellaneous bucket.

I also do not include assets which I view as consumption items such as our car and wine sitting in a bonded warehouse which will be consumed with little residual value at the end of the day.

 

[Bir48die]

Along with my projections on budgets and portfolio scenarios I just keep a simple balance sheet. Current assets include bank and MM balances. I also include taxable accounts as they can accessed without a tax event other than CG's. I then have long term "liquid" assets including all tax deferred accounts. Last asset column is long term non-liquid which is house, cars, etc.

No liabilities so that piece is easy. I do include a $1,000 S/T Liability that includes a stupid time share my wife bought with her late husband. That's a whole other subject.

I usually update balances monthly to reflect market changes which helps me get ready for the next year's planning.

 

[ncbill]

Health is no where in the formula for net worth but without it, net worth is just a number you cant use. A friend of mine worked until 70. His wife died last year. He recently was diagnosed with lung cancer at 71 yo a year after retiring. He's now on hospice care and not expected to live much longer. he told me before this diagnosis that his nw went up 600k since 1/1/19.

No kidding...I have a close relative who just turned 80.

Health problems means he's no longer allowed to drive, essentially stuck in his house, can barely walk, with no short-term memory anymore.

He was happy to make it past 70 since all of his (male) relatives were dead by that age, but as he notes, the last few years have been brutal...

 

[FatCyclist]

Not suggesting that I'm doing it right, but I track "liquid" net worth and "illiiquid" net worth. Liquid is cash, bonds and securities/mutual funds/ETFs minus liabilities. I don't differentiate (for net worth purposes) between tax-deferred and taxable accounts. In other words, a dollar in an IRA is the same as a dollar in a Roth or a checking account.

Illiquid is real estate and cars. I re-value the real estate and the cars at the beginning of the year, usually using Zillow and Kelly Blue Book, but often lowering their estimates if they seem to rosey. I don't include any other personal property such as furniture, art, etc.

 

[texasdiver]

I track the net worth value as shown in Quicken which is just the net of all our bank and investment accounts minus any credit card balances.

We have maybe $300,000 equity in our home but I don't really count that except to be aware of it.

I don't count any possessions, vehicles, etc. We don't have lots of gold or expensive jewelry or anything like that.


Honestly "net worth" doesn't really mean that much to me. The more important number is the value of our retirement investments because that determines our future income not things like the value of our cars or the equity in our home.

 

[steveark]

I use Personal Capital to track it but it isn't material to my lifestyle. We have more than we need by a lot. I also look at my cash plus investment portfolio for my liquid net worth. Finally if I really want to know where I stand I add in the net present value of our Social Security which we won't draw until 70. That adds another $1.5 Million in today's dollars to the total. But that's not my net worth, that's more like a measure of my comfort factor. But life being what it is, once money is removed as a source of worry something else will pop up to take its place, like health issues.

 

[ychuck46]

Same here

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.

I do exactly the same thing, using our investable assets and a value for the house as assets. Anything else like vehicles, personal goods, etc I ignore. I do it just as a snapshot for my own edification to make sure we are doing well in retirement, that's all.

 

[jldavid47]

Net worth is a simple calculation: Total Assets minus Total Liabilities. However, I have two additional net worth calculations I use: (1) Financial net worth which is total net worth minus home and personal property and (2) Liquid net worth which is Financial net worth minus money in retirement plans/insurance products. I use Financial net worth as a base for retirement planning and Liquid net worth as a gauge for how long we could survive without any income stream.

 

[Jollyquick]

Net worth is really just an illusion based on a snapshot in time. It is useful to lawyers during lawsuits and people wanting to justify LBYM lifestyles. It doesn’t take into account your earning potential over your lifetime or your tax status.

Take for example my grandfather that was “land rich”. He owned his home outright (he and his father built it themselves), he had retired on a fixed pension and had a very respectable “net worth”. He had worked hard his whole life and had retired “comfortable”. Then the EPA sued his former company and they went bankrupt and he lost his pension. He was too old to go back to work so he had zero income earning potential other than social security. Then the county and state aggressively raised property taxes and he couldn’t keep up with them. After he had sold everything he owned to pay taxes, the State confiscated his home and land for being tax delinquent. He ended up living with us until he died.

The moral of the story is what you consider net worth is only “real” right now. Governments can (and do) decide on a whim what belongs to you and what is “fair”. That is an extremely difficult (and uncomfortable) factor to put into a formula determining the real value of net worth.

Maybe a liquidity ratio or portfolio resilience assessment would be a better measurement of true value. The current formula of NW = total assets - total debt just lulls you into a false sense of security.

 

[jimbee]

Net worth is really just an illusion based on a snapshot in time.

Isn't that true of a lot of mathematical calculations?

 

[Maidensong]

Tracking Net Worth

I'll admit, when the DH retired early in 2015, we were a little concerned about not having a steady paycheck. It's worked beautifully, but one of the things the DH did to ease our fears was create a net worth spreadsheet to make sure we weren't blowing through things too quickly.

Here's what he tracks at the end of each month: IRA balance, cash on hand, stock account, rental property value, home value & personal property value. (He's extremely conservative on the real estate and personal property values and in fact hasn't raised his estimate since he started.)

Since 2015, our net worth has actually increased by around 400K, even though we've been living on our rental income, savings, and small IRA distribution.

The main reason to track your net worth is peace of mind. And forget about comparing your number with anyone else's. Do you love your life? Are your relationships happy? If you have what you need to meet your expenses, help others and have some fun, the net worth thing doesn't really matter.

 

[The Cosmic Avenger]

Since Fidelity offers their "Full View" asset and NW reports, I have linked my other accounts and added our property's value (no liability on it), and it gives both investable/liquid assets total, and net worth total. It's handy to see the reports on AA across accounts, how each sector has done over different time periods, and other things like that. The only drawback (and one I am glad to have) is that because of the 2FA security on all my accounts, I have to manually update the external accounts.
For me, NW is nice to see, because if we decide to move in retirement, it gives me a better idea of what we can afford if we sold our current house, and it's gotten me thinking about both dipping into our assets and adding the value of the house to our investment portfolio.

 

[Time2]

I monitor my net worth just to know that I can live on 4% or less. I have a couple of years before my spend rate is actually there though. I still have two kids in college and have an addition $70k coming from my savings for tuition costs. When they are out of school I expect my spend rate to drop by about a 2/3rds. At that point I expect to spend under 4%.

I have also made the comparison of what networth percentile am I in?


https://dqydj.com/net-worth-brackets-wealth-brackets-one-percent/


I haven't hit 1% but I'm in single digits.

 

[indiajust]

All my assets and liabilities are in quicken. So I have a net worth graph going back to 1990 when I escaped grad school.

 

[kcowan]

Not suggesting that I'm doing it right, but I track "liquid" net worth and "illiiquid" net worth. Liquid is cash, bonds and securities/mutual funds/ETFs minus liabilities. I don't differentiate (for net worth purposes) between tax-deferred and taxable accounts. In other words, a dollar in an IRA is the same as a dollar in a Roth or a checking account.

Illiquid is real estate and cars. I re-value the real estate and the cars at the beginning of the year, usually using Zillow and Kelly Blue Book, but often lowering their estimates if they seem to rosey. I don't include any other personal property such as furniture, art, etc.

^ This ^

I do not revalue the real estate but that is because it is my buffer to pay the capital gains taxes.