Financial Net Worth

[CommonCents]

+1.  Good point. Liquidation of home equity should not increase net worth. Any counterpoints to that one? I'm genuinely curious.

Not a counterpoint, just a comment that once your stash is at a real-world FI amount, for most people hanging out here the home equity will be a small percentage of overall net worth. $1.5M net worth, 150K house, for example.

I'm not sure I've ever even seen a $150K house where I live (Boston).  It's probably a less sum of overall net worth than average folks, but I don't know that it's quite such a discrepancy as you portray it.  Be another interesting poll - home equity as a percentage of net worth.

AdrianC - Good point.
CommonCents-Mine is either 15.64% or 11.22%, depending on what I include in my NW. I own some privately held stock that I don't include in my NW # for now since it's not super marketable or liquid, but if I include it my home equity % drops.

What's your %?

Mine is hard to calculate right now, as we're in the midst of selling the condo (just bought a house).  Once we sell the condo, we'll put some of that money into the house.  When the dust settles, I anticipate it'll be approximately 36%.

[AdrianC]

I'm not sure I've ever even seen a $150K house where I live (Boston).  It's probably a less sum of overall net worth than average folks, but I don't know that it's quite such a discrepancy as you portray it.  Be another interesting poll - home equity as a percentage of net worth.

Ah yes! How quickly I forget. When we lived in SoCal and our house was a large part of net worth. We moved to Southern OH and our net worth went up (sold at the right time - pure luck) and house as % of net worth went down (houses are cheap here). I do miss the sunshine. I don't miss the 30 mile/1 hour commute and tiny, tiny house :-)

EDIT: I think of house equity as what we paid for it, so net worth went up because we sold for 2x what we paid. Probably should say our investable funds went up.

[lentilman]

Home equity should absolutely be included in net worth.  As others have pointed out, exchanging equity for cash by selling the house doesn't increase your net worth.  Equally, exchanging cash for equity doesn't decrease your net worth either.

I'm guessing you wanted to ask what people have as invested (or income producing) assets.  So I will suggest a change in the poll question.

Unfortunately, I'm busy during the next full moon at 3:30 am North Pole time when the application window to the change committee is open so I can't make the submission myself.  But I will be happy to sign the petition document if someone else wants to spearhead the grassroot campaign to change it.

[dragoncar]

Home equity should absolutely be included in net worth.  As others have pointed out, exchanging equity for cash by selling the house doesn't increase your net worth.  Equally, exchanging cash for equity doesn't decrease your net worth either.

I'm guessing you wanted to ask what people have as invested (or income producing) assets.  So I will suggest a change in the poll question.

Unfortunately, I'm busy during the next full moon at 3:30 am North Pole time when the application window to the change committee is open so I can't make the submission myself.  But I will be happy to sign the petition document if someone else wants to spearhead the grassroot campaign to change it.

Now taking nominations for petition fonts -- I say Helvetica.

[Carrie]

I don't see the value in excluding the home in networth calculations.  We've put a lot of effort into putting a 40% down payment and paying down the mortgage substantially since purchase.  The equity position in our home is a good percentage of our networth and will be reaped when we sell to downsize.

In that case, the difference between what you could sell it for and what you could buy a replacement for would be appropriate to add in.

The equity that's "locked into" the house has no value for paying the bills so that's why it's not included.

Isn't this close to the same thing as 401k/IRA investments that are tied up until 59 1/2?  Or any investments? Investments would have to be sold/cashed in to actually have cash in hand to pay bills.  Same thing with home equity.  You'd have to sell your home, but then you'd have cash in your hand, just as if you'd sold any other investment.

As you pay off your mortgage, it absolutely adds to your ability to pay bills -- seeing as how you would have eliminated a major expense (at least major in most budgets).   So are you saying that owning your home doesn't add any to net worth?  That doesn't make sense to me.  If you didn't own a home, you'd not be in as secure a place as a homeowner (generally speaking, as rent would go on for eternity, but a paid off home could be sold for profit or lived in "free" excluding taxes/insurance).

[AdrianC]

As you pay off your mortgage, it absolutely adds to your ability to pay bills -- seeing as how you would have eliminated a major expense (at least major in most budgets).   So are you saying that owning your home doesn't add any to net worth?  That doesn't make sense to me.  If you didn't own a home, you'd not be in as secure a place as a homeowner (generally speaking, as rent would go on for eternity, but a paid off home could be sold for profit or lived in "free" excluding taxes/insurance).

In any normal definition of net worth your home equity is included. What we are getting tangled up in is the difference between net worth and what you have to live on. What matters is that you have at least 25 times your annual expenses invested appropriately (I think more than 25 x but I'm super cautious). Got that and you can call yourself Financially Independent. I think it's fine if a portion of that money is tied up in a large house and will be freed up when you downsize, and it should be counted. Just bear in mind that house prices go down as well as up, and can be illiquid just when you don't want them to be. I learned this one the hard way. Doesn't MMM have a rental house "by default"? I did too for a long time.

[lexie2000]

How about the value of having a pension instead of or in addition to having 401ks, IRAs, etc.  I didn't try to quantify it in my vote and if we both die tomorrow, it's worth nothing, but add it up over the next 30+ years (we're 57) and it adds up to a rather large stash.

My vote would have not changed in this poll whether I had included our home value or not, but because we live in the SF Bay Area, it is 23% of our overall net worth. 

My vote again would not have changed in this poll if I had polled single, but aren't net worth stats usually taken by household?  In any case, we were single income for over 75% of our accumulation years, so maybe it wouldn't matter either way. 

[Carrie]

For value of pension, I use the current "cash value" in figuring net worth.  We have the opportunity to roll it over, but have run the numbers and it makes sense to keep it so we can later reap approx. $900/mo. Also by keeping it, we remain vested in case of returning to that employer (which is a possibility when partial retirement approaches). 

[CommonCents]

For value of pension, I use the current "cash value" in figuring net worth.  We have the opportunity to roll it over, but have run the numbers and it makes sense to keep it so we can later reap approx. $900/mo. Also by keeping it, we remain vested in case of returning to that employer (which is a possibility when partial retirement approaches).

Oh that makes sense.  Didn't occur to me to do this, but I should have.  Wouldn't have changed the figures though.

[lexie2000]

For value of pension, I use the current "cash value" in figuring net worth.  We have the opportunity to roll it over, but have run the numbers and it makes sense to keep it so we can later reap approx. $900/mo. Also by keeping it, we remain vested in case of returning to that employer (which is a possibility when partial retirement approaches).

DH retired last year.  There was no option to take a lump sum.  This thread has got me curious to how much it's really worth.  How would I calculate current cash value?

[Cheddar Stacker]

For value of pension, I use the current "cash value" in figuring net worth.  We have the opportunity to roll it over, but have run the numbers and it makes sense to keep it so we can later reap approx. $900/mo. Also by keeping it, we remain vested in case of returning to that employer (which is a possibility when partial retirement approaches).

DH retired last year.  There was no option to take a lump sum.  This thread has got me curious to how much it's really worth.  How would I calculate current cash value?

Try this attachment. It's a super simple present value calculator I made in excel. I think I calculated this for a lawyer as part of a settlement. We were calculating the present value of an annuity. I'm sure there are better ways to do this, but hopefully it will give you some idea what it's worth.

You'll have to change the interest rate, number or years, etc. which is of course all just assumptions (WAG).