Random thoughts on net worth.

[frayne]

I've never looked at house value appreciation as a way to rationalize or think about offsetting market losses. I track my net worth sans house value. As someone once said "you can always pick the raisins out of the raisin bread but at the end of the day it's still a loaf of bread."

 

[Gumby]

I have enough income to support my desired lifestyle. I have a nice place to live. I have no heirs. So net worth is largely irrelevant to me. But I can see that it may be a comfort for home prices to have gone up more than liquid assets have gone down recently.

 

[Car-Guy]

So as I said in post #11 of this thread. How folks calculate their NW is all over the map. (See below from the small handful of related responses in this thread) Some include their house(s), some don't, some include their future SS payments, some may not, some include rental income, etc.... Surprised no one mentioned their pensions "yet", among other things. One of these days I'll start a thread and poll (maybe) specifically to get folks opinions as to what should be included in a NW calculation. Not that there is any right or wrong answer, (IMO) but it should be interesting. But not today, it's Sunday, and I'm not "working" today.

I rarely use 'net worth' in planning, because our house is not what we're withdrawing for living expenses. Just a nice ah-ha moment. And the bonus of increased rental income as our new tenant moves in is spendable icing on the cake.

Agree. My targets have all been based on non-home net worth.

Calculation of "net worth" (however you define it) really doesn't have any value for me, but I do keep track occasionally. For the value of my home I simply use the assessed valuation (what my property tax is calculated on). That is updated every few years and is always well below what the actual selling price would be.

Me either. Until I sell the house and get the proceeds in cash, the value of our house is very subjective and moot in the grand scope of things. Yes home equity is part of net worth, but shouldn’t be considered an investable asset IMO.

my understanding is, to leave out real estate value but include rental income, right?

I do track all our assets: autos, home and other higher value items for a true net worth, but really only use our brokerage assets plus 75% of our planned social security benefits for income planning.

Us too.

I have enough So net worth is largely irrelevant to me. But I can see that it may be a comfort for home prices to have gone up more than liquid assets have gone down recently.

 

[TheWizard]

In my tenth year of retirement, I monitor my income streams mostly, especially towards the end of the year when I decide how much to Roth convert, to keep my AGI under the next higher IRMAA threshold for two years hence.

I also monitor my liquid investments (tax-deferred, taxable, and Roth) occasionally to see how they are doing.

But I don't really compute or monitor my Net Worth at all ...

 

[W2R]

So as I said in post #11 of this thread. How folks calculate their NW is all over the map. (See below from the small handful of related responses in this thread) Some include their house(s), some don't, some include their future SS payments, some may not, some include rental income, etc.... Surprised no one mentioned their pensions "yet", among other things.

Really, it seems to me that what we include in a calculation very much depends on how we are going to use the results. People are re-defining "net worth" according to what is useful to them personally. OK by me.

Personally I never calculate "formal" net worth. I add up what I have in the bank and in my portfolio, and whatever you want to call that sum, that's what I have. I don't include my house (because I don't have a rock solid appraisal on it each day, and besides I'll never sell!) or my pension (because it is small, it is what it is, and it's not going to change).

 

[Car-Guy]

People are re-defining "net worth" according to what is useful to them personally. OK by me.

Me too... What "I" find interesting is when folks try to compare their NW to the NW of others... Some folks include things "like their house and/or their SS" and others do not. Pointless, IMO unless everyone uses the same accounting components... But really I don't care about someone else's NW anyway, (regardless of what they include) it just comes up here a lot ...

 

[foxfirev5]

If I can't sell it before 4 PM on Monday it doesn't count. And given the current market I don't see myself selling anything soon.

 

[ncbill]

I cringe a little when I see posts like:

"I'm worth $4 million...paid-off $3 million house in a HCOL & are plus a $1 million equity/fixed income portfolio."

A personal residence is a highly illiquid asset with outsized transactions costs.

As 2008-9 showed us a HELOC can be frozen or cancelled at anytime...amount of equity available doesn't matter when lenders panic.

 

[Andre1969]

If I can't sell it before 4 PM on Monday it doesn't count. And given the current market I don't see myself selling anything soon.

That's about my sentiment. I might use the phrase "net worth" from time to time, but I try to call it "invested assets" or something like that, to keep things like the house or the cars out of it. Yeah, maybe I do have $200-300K equity in the house, but that doesn't really do me any good, unless I sell the house. Or refinance and take cash out, or do an HELOC. And at today's rates, I don't think that's too favorable.

Similarly, who knows? My '57 DeSoto Firedome might fetch me $20K if I wanted to sell it. But, if I wanted that $20K, say, tomorrow, that doesn't do me much good. Unless, by some freak of nature, "WeBuyAnyCars dot com" takes it off my hand. But I'm sure I'd get low-balled.

 

[N02L84ER]

Around once per year I update the value of our home in Quicken but only because I expect we will exceed the state (IL) taxable estate exemption by the time we are 70+ years of age. During down markets, I totally ignore NW.

 

[daylatedollarshort]

I cringe a little when I see posts like:

"I'm worth $4 million...paid-off $3 million house in a HCOL & are plus a $1 million equity/fixed income portfolio."

A personal residence is a highly illiquid asset with outsized transactions costs.

As 2008-9 showed us a HELOC can be frozen or cancelled at anytime...amount of equity available doesn't matter when lenders panic.

So it would be better to have a $100K house and $1M in the bank? I'm not sure I see your point. The $3M house would likely rent for a pretty penny.

 

[Andre1969]

So it would be better to have a $100K house and $1M in the bank? I'm not sure I see your point. The $3M house would likely rent for a pretty penny.

It depends. If that $1M is all you have (i.e., you're not getting a pension, not much in the way of SS, etc) and you want to live in your home, I have a feeling that $3M house would eat up your $1M portfolio in short order, what with property taxes, insurance, utilities, upkeep, etc. In contrast, you might be able to make it just fine, with the $100K house.

Of course, with the paid-off $3M house, you could always downsize, if needed/wanted.

 

[daylatedollarshort]

It depends. If that $1M is all you have (i.e., you're not getting a pension, not much in the way of SS, etc) and you want to live in your home, I have a feeling that $3M house would eat up your $1M portfolio in short order, what with property taxes, insurance, utilities, upkeep, etc. In contrast, you might be able to make it just fine, with the $100K house.

Of course, with the paid-off $3M house, you could always downsize, if needed/wanted.

I suppose it depends on the area. In California, many long time owners have low property taxes due to Prop 13, and homes are often expensive more based on land prices / location rather than being 6,000 sq feet or having huge acreage. So home insurance and utilities may not be that high. One could live pretty cheaply in a multimillion dollar home here, unless it was bought more recently and had high property taxes. Even then a paid off $3M home would likely rent for something like $10K a month, more than enough to cover taxes, insurance and still make a tidy profit.

 

[aja8888]

I wish in my net worth I could have a spare kidney, a new liver and a young heart all on ice in case I needed one or any of each.

My millionaire BIL got a new heart at 74 and if he didn't, he wouldn't have enjoyed is money and big house for another 5 years.

 

[friar1610]

I used to track net worth but I don’t see muchq reason to any more. If an asset doesn’t generate spendable income in the here and now, its current value matters little. The only thing that really matters is the total net worth after my wife and I have died. The Commonwealth of Massachusetts wants its share as an estate tax and its exemption amount is among the lowest in the country. (No worries about breaching the Federal limit.)

 

[NW-Bound]

I suppose it depends on the area. In California, many long time owners have low property taxes due to Prop 13, and homes are often expensive more based on land prices / location rather than being 6,000 sq feet or having huge acreage. So home insurance and utilities may not be that high. One could live pretty cheaply in a multimillion dollar home here, unless it was bought more recently and had high property taxes. Even then a paid off $3M home would likely rent for something like $10K a month, more than enough to cover taxes, insurance and still make a tidy profit.

My 2 paid-for homes are worth a combined 7-figure, but not $3M. My investable assets are more than $3M though, and brought me much more than $10K/month.

A few mouse clicks on Quicken told me my investment income was $370K for the last 12 months. However, more than 1/2 of that was from the option premium I generated by selling covered calls and puts.

You can tell I am biased towards non-RE assets. Income without headache from tenants.

 

[NW-Bound]

I wish in my net worth I could have a spare kidney, a new liver and a young heart all on ice in case I needed one or any of each.

My millionaire BIL got a new heart at 74 and if he didn't, he wouldn't have enjoyed is money and big house for another 5 years.

New kidney, liver, and heart are necessary but not sufficient for a long and happy life.

Your body needs more replacement parts than these, sadly.

 

[daylatedollarshort]

My 2 paid-for homes are worth a combined 7-figure, but not $3M. My investable assets are more than $3M though, and brought me much more than $10K/month.

A few mouse clicks on Quicken told me my investment income was $370K for the last 12 months. However, more than 1/2 of that was from the option premium I generated by selling covered calls and puts.

You can tell I am biased towards non-RE assets. Income without headache from tenants.

I didn't say starting from scratch is real estate a better investment than liquid assets. My reply was to someone posting they cringe when someone posts they have $1M in liquid assets and $3M in a house. But if you have to live in a house anyway, better to live in one that goes up seven figures than one that losses market value, unless your property taxes make it too expensive to keep living there.

 

[Closet_Gamer]

We calculate our NW twice each year.

I find it useful for three reasons:

1) I like "putting the scores on the door" as they say...it ensures I'm not cherry picking things as we go through the months. Write it all down, total it all up and inspect how you've gotten from A to B toC.

2) It has served as a bit of inspiration through the years. Both to smile at the progress and keep me on task when things weren't so rosy.

3) Doing it twice per year with a lot of discipline keeps me from doing 50 times each year badly. Also creates some space/discipline between making any snap decisions. I make decisions twice per year. (Every five years I do a top-to-bottom inspection of our investing policy statement, asset allocation, etc.)

My $0.02.

 

[NW-Bound]

I didn't say starting from scratch is real estate a better investment than liquid assets. My reply was to someone posting they cringe when someone posts they have $1M in liquid assets and $3M in a house. But if you have to live in a house anyway, better to live in one that goes up seven figures than one that losses market value, unless your property taxes make it too expensive to keep living there.

Understood.

I was suggesting that if a person cannot stay in his $3M home and has to use it to generate income, that $3M can generate more income if it is non-RE asset.

 

[daylatedollarshort]

Understood.

I was suggesting that if a person cannot stay in his $3M home and has to use it to generate income, that $3M can generate more income if it is non-RE asset.

I just threw out the $10K number without doing any research, though I did just look at Zillow at that came pretty close. The home would likely get appreciation and tax deductions as well. There are many rental homes in our area, but I don't know if they are great investments or not compared to the alternatives. Some of our neighbors move to senior housing or lower cost of living areas and then rent out their homes. If we moved we would rent so we could leave the house and the property tax benefits to one of our kids, even though the tax benefits aren't as generous as they once were.

 

[NW-Bound]

I just threw out the $10K number without doing any research, though I did just look at Zillow at that came pretty close. The home would likely get appreciation and tax deductions as well. There are many rental homes in our area, but I don't know if they are great investments or not compared to the alternatives. Some of our neighbors move to senior housing or lower cost of living areas and then rent out their homes. If we moved we would rent so we could leave the house and the property tax benefits to one of our kids, even though the tax benefits aren't as generous as they once were.

A home may have sentimental values, and I understand people reluctance to sell it.

However, if I have to rent out my homes, they would lose that value. I don't like other people using my personal belongings. I would rather sell them and move on.

 

[aja8888]

New kidney, liver, and heart are necessary but not sufficient for a long and happy life.

Your body needs more replacement parts than these, sadly.

I've already got two new hips, a few dental implants, two steel plates and screws in my left arm, and a chunk of steel in one shoulder. I'm lookin' for the soft tissue stuff now.

 

[NW-Bound]

I've already got two new hips, a few dental implants, two steel plates and screws in my left arm, and a chunk of steel in one shoulder. I'm lookin' for the soft tissue stuff now.

Now, how do we account for these body parts in our "net worth"?

I don't yet have any parts in my body, other than some permanent surgical staples left inside me. But the cost for keeping me alive was around $200K, incurred 9 years ago.

 

[RobbieB]

My back still aches from all the work in the engine room. First colonoscopy had 6 polyps removed, now scheduled for another in 3 years. Yeah, kinda quick eh?

Very glad I bought the boat at peak of market. Figure I've got 10 years to enjoy it.