How do YOU figure your Net Worth

[Zipper]

Keeping track of your net worth is very important. It should be done at least yearly.

Net worth begins slowly but should increase steadily, even in retirement. Meadbh has linked an excellent program.

I think one of the main reasons for paying off a mortgage asap is the buffer it provides if the portfolio goes wonky for a couple of years. (2000-2002). Or if house values actually decline, your equity can't go negative.

Your RE or portfolio can take a beating but one usually offsets the other.

If you find your net worth is dropping then you will have to make adjustments.

 

[azanon]

Assets - Liabilities. The only non-cash assets I track are my house and cars and they are priced at FMV. I track house and cars because they are so significant in value and can be relatively easily liquidated at FMV. All loans are included too.

 

[mathjak107]

theres a big difference between can be liquidated and will be liquidated in my mind when it comes to cars and homes.

i dont count anything thats a consumption item until im no longer consuming it.

 

[azanon]

theres a big difference between can be liquidated and will be liquidated in my mind when it comes to cars and homes.

i dont count anything thats a consumption item until im no longer consuming it.

There is a difference between those two things, but the question at hand is net worth. What are you worth, asked loosely. If you own a 200K dollar house, and someone asks you or was interested in what are you worth, you wouldnt include that?

I guess one can do pretty much anything in a calculation, including net worth, the only question is how accurate would it be. I leave out my owned furniture so i guess by definition, mine has some mild inaccuracies, but i dont see a few thousand at most as mattering that much. But a house? Yes, of course that is included.

BTW, houses thought of as consumption items is so Kioyaski. If i'm consuming it, then why 1. is it still there. 2. going up in value

Fortunately, the issue for me in quicken is mostly mute anyway. Quicken divides up assets into cash, investments, and property and debt, and adds the three together to determine "net worth". So, if i wanted to know just my (cash) investment net worth, the figure is there. Regardless, we certainly have quicken's opinion on what net worth is, which is pretty much how I defined it.

 

[FinanceDude]

Assets - Liabilities. The only non-cash assets I track are my house and cars and they are priced at FMV. I track house and cars because they are so significant in value and can be relatively easily liquidated at FMV. All loans are included too.

FMV for a car is often inflated by folks. I price mine at wholesale, because if you trade it in, that's all you're getting anyway..........

 

[justin]

I guess age is a factor in determining what is important to include in net worth. For many of us Young Dreamers, our houses, cars, etc. are substantial portions of our net worths since we don't have the seven figure portfolios (yet!) to dwarf our other assets. And many of us have a large chunk in the "debt" column (mortgages, car loans, student loans, etc).

Once you're debt-free and have substantial assets outside of your house and cars, those two aren't a significant part of your net worth.

For me, I need some way to track debt reduction, since that is as important to my FIRE goals as acquiring a sizeable portfolio.

 

[rs0460a]

Once you're debt-free and have substantial assets outside of your house and cars, those two aren't a significant part of your net worth.

Exactly!

- Ron

 

[azanon]

FMV for a car is often inflated by folks. I price mine at wholesale, because if you trade it in, that's all you're getting anyway..........

Perhaps, but i just sold my Nissan240sx for exactly how i had it valued. I don't price at wholesale because I dont trade my cars in (anymore). Its just too easy to sell on ebay at private party value.

I use Kelly Blue Book to value my car.

I have no interest at all in overvaluing either my house or my car. I'm far more interested in my figure being accurate than inflated.

 

[azanon]

I guess age is a factor in determining what is important to include in net worth. For many of us Young Dreamers, our houses, cars, etc. are substantial portions of our net worths since we don't have the seven figure portfolios (yet!) to dwarf our other assets. And many of us have a large chunk in the "debt" column (mortgages, car loans, student loans, etc).

Once you're debt-free and have substantial assets outside of your house and cars, those two aren't a significant part of your net worth.

For me, I need some way to track debt reduction, since that is as important to my FIRE goals as acquiring a sizeable portfolio.

The day I can characterize my house as not even being a significant part of what i'm worth, is the day I know for fact i dont own enough house.

Now to be fair, what's significant to someone is certainly a matter of opinion. I could be worth 3 million in cash, and i'd still consider a house valued at 200K as significant; certainly significant enough to be counted! My dad's worth 3 million cash, and i have no doubt at all he would characterize $200,000 dollars as a significant amount of money! Warren Buffet could maybe call that amount insignificant, but certainly no average millionairre could (IMO).

 

[justin]

I have no interest at all in overvaluing either my house or my car. I'm far more interested in my figure being accurate than inflated.

Same here! And I figure even if I'm off by $1000 per car, does it really matter? I'm mostly looking at change in net worth over time, so if I consistently have that extra $1000-2000 in my net worth figure, the change in net worth over time will at least be correct. And I get to see how the car is depreciating over time. I don't really care if the car is worth $7000 wholesale or $8000 retail when I have $100k's of other assets that are included in my net worth calcs.

 

[justin]

The day I can characterize my house as not even being a significant part of what i'm worth, is the day I know for fact i dont own enough house.

Now to be fair, what's significant to someone is certainly a matter of opinion. I could be worth 3 million in cash, and i'd still consider a house valued at 200K as significant; certainly significant enough to be counted! My dad's worth 3 million cash, and i have no doubt at all he would characterize $200,000 dollars as a significant amount of money! Warren Buffet could maybe call that amount insignificant, but certainly no average millionairre could (IMO).

What I meant by "significant part" or "substantial portion" of net worth was merely that as the investment portfolio size increases and the house+car value stays relatively flat, the house+car value becomes increasingly insignificant, expressed as a percentage of net worth. I'm not arguing that a $200k house or a $20k car is insignificant in and of itself, but rather expressed as a percentage of net worth, it is a rather small percentage for most of the FIRE'd folks (based on the recent poll on house value vs. net worth, where many folks were in the 20% or less bracket).

Right now, my house+cars are equal to approximately 100% of my net worth (I'm 26). I anticipate by the time I'm FIRE'd, my house+cars value will drop to ~10% of my net worth. If I omit the house+cars from my net worth calculation today, my net worth changes dramatically. If I were to omit the house+cars value from my net worth calc after reaching FIRE, the change in net worth would not be substantial (greater than 20%).

 

[FinanceDude]

Same here! And I figure even if I'm off by $1000 per car, does it really matter? I'm mostly looking at change in net worth over time, so if I consistently have that extra $1000-2000 in my net worth figure, the change in net worth over time will at least be correct. And I get to see how the car is depreciating over time. I don't really care if the car is worth $7000 wholesale or $8000 retail when I have $100k's of other assets that are included in my net worth calcs.

I think it's pretty easy to do the average American's net worth, OUTSIDE of this board:

Assets: House $200,000
Cars 30,000
401Ka 75000
IRA's 0
Total: $305,000

Liabilities: Mortgage: $170000
HELOC: 45,000
Credit cards: 16,000
Dept store CC: 11,500
Auto Loans: 25,000

Total: $267.500

Net Worth: $37,500..................and probably late 30's to early 40's...........

 

[rs0460a]

The day I can characterize my house as not even being a significant part of what i'm worth, is the day I know for fact i dont own enough house.

Well, being that this discussion is in "Young Dreamers" I understand your quandary. As an "oldster", 4.5 months away from retirement, I can tell you that "some day" your home will be secondary to your "retirement pot" (or at least it should be.)

I'm not at an age that I need "stuff" (been there - done that). What I need are the "basics" to make me happy. In my case, it's the following:
- A good marriage/partner to share my "life journey" (for me/DW, passed our 37th anniversary, this year).
- Family/friends that will accept who you are, and "what you are all about"
- Something in your life that "makes you happy" (other than your family/friends). For me, it's my dogs.
- A place that you find "comfortable" and can call home (yes, I/DW have that, even though we could "afford" much, much more). The only thing is, it won't affect our "happiness factor" .

In your "accumulation years" you will strive for more, better, etc (nothing wrong with that, for that time of life). When it is time to "smell the roses/coffee", I hope you can find "peace" with what you have accumulated/achieved in life (I know I have).

I don't need a "bigger home" to make me happy - I,m blessed with what I have...

- Ron

 

[OkieTexan]

In your "accumulation years" you will strive for more, better, etc (nothing wrong with that, for that time of life). When it is time to "smell the roses/coffee", I hope you can find "peace" with what you have accumulated/achieved in life (I know I have).

I don't need a "bigger home" to make me happy - I,m blessed with what I have..

I cannot say it better than this!

This thread:

http://early-retirement.org/forums/index.php?topic=10781.0

has a pretty good discussion about how many of us include the house in the NW and why.

 

[brewer12345]

Well, being that this discussion is in "Young Dreamers" I understand your quandary. As an "oldster", 4.5 months away from retirement, I can tell you that "some day" your home will be secondary to your "retirement pot" (or at least it should be.)

Heh, doubtful! Bear in mind that yo were responding to one of the most [deleted by moderator] people I have ever encountered.

 

[mathjak107]

if you own a house and count its worth because somewhere in the future you may sell it, if you dont own a house should you subtract years of rent off of your net worth that you will pay in the future??

 

[retire@40]

if you own a house and count its worth because somewhere in the future you may sell it, if you dont own a house should you subtract years of rent off of your net worth that you will pay in the future??

aaah, No.

 

[mathjak107]

well why not? i think by the same logic of counting a house you live in and may continue to live in you should subtract out future rents if you dont own a house

 

[MonarchDon]

Right now, my house+cars are equal to approximately 100% of my net worth (I'm 26). I anticipate by the time I'm FIRE'd, my house+cars value will drop to ~10% of my net worth. If I omit the house+cars from my net worth calculation today, my net worth changes dramatically. If I were to omit the house+cars value from my net worth calc after reaching FIRE, the change in net worth would not be substantial (greater than 20%).

If my primary house ever becomes only 10% of my total net worth I will be happy. Today my house is worth 800 -850k. If my home never appreciates another penny and if my net worth ever reaches 8 million bucks then I would be a happy camper....... I don't think it's realistic to look at it in terms of percentages.

 

[retire@40]

well why not? i think by the same logic of counting a house you live in and may continue to live in you should subtract out future rents if you dont own a house

Because your house has a current economic benefit to you that was derived by your hard work and/or luck in the past. You earned a dollar at work or inherited a dollar and elected to transfer that dollar to another asset, your house. It has real current value that you could liquidate and use for another benefit (such as buying food for yourself).

When you take a current snapshot of your net worth at any given moment, you only apply present economic events as they exist at that point in time.

Future expenses, such as future rents, have no value (positive or negative), nor do they cause you to sacrifice any of your current wealth until such time as you may enjoy the benefit of that expense. Therefore, you do not subtract from your current wealth any future potential obligations that are not a result of past or current economic events.

 

[mathjak107]

well again depending on for what purpose you are figuring net worth decides wether the house carries any value for that purpose. whether a house is a millon dollars or a 100,000 is meaningless if you live in it forever or sell it and buy one of equal value.. it may mean something to your heirs, it may mean something to the bank for a loan and it may mean something to you making you feel better about owning something . but except for saving future rent payments it really dosnt count much in planning. the savings in rent though would be classified as cost of living expenses. its conceivable a renter could pay less to live in a different area or lower tax area or smaller house than an owner of a more expensive place of residence

 

[donheff]

well again depending on for what purpose you are figuring net worth decides wether the house carries any value for that purpose. whether a house is a millon dollars or a 100,000 is meaningless if you live in it forever or sell it and buy one of equal value..

I don't understand why we always have this argument. People are defining net worth for their own purposes but net worth has a definition already. Here it is expressed by American Century Investment Glossary: Dollar amount by which assets exceed liabilities. An individual's net worth equals the total value of all possessions (house, stocks, bonds, etc.) minus all outstanding debts (mortgage, credit cards, etc.). For a corporation, net worth is also known as "net assets"

Think of net worth as "my financial value to my heirs if I die today." All of this other stuff is something else like "net spendable assets" or something. For that this argument is very fitting and a house may or may not be part of "net spendable assets." Mathjac is correct that it would be wrong to value the house in that case if you plan to stay in it until you die and are averse to reverse mortgages, moving to an apartment, etc. On the other hand, if you are sitting in a $1M house and are considering moving to an apartment, the house can be part of your "net spendable assets" but the cost of rent over existing property tax and maintenance will then become part of your expenses.

 

[retire@40]

...whether a house is a millon dollars or a 100,000 is meaningless if you live in it forever or sell it and buy one of equal value...but...it really dosnt count much in planning...

I've said that too numerous times in past posts. As you and I describe it, a house under that scenario is a sunk cost that should not be part of your assets for SWR-planning purposes.

 

[Robert the Red]

I'm lazy -- my net worth is what Vanguard's Cashedge software can reach. Since that doesn't include my house or a few other things, I don't think about them so much.

Money is like potential energy -- it's to be converted into something else eventually. What you're going to convert it into determines how useful it is. Your home equity is right now providing shelter. If that's all it will ever do (while you live), then you're not converting it into something else and so it's not part of your net worth -- in this life.

 

[brewer12345]

[deleted by moderator]

Aw come on, Martha. There weren't even any swear words in that one! He is also a (^%&$^*^%^%*#@#!@~~!#&$#*%&$##!@!$#@%$^*^#$@#!#@*^#(&$)^$%#%$@$#!