Author Topic: So, am I a millionaire?  (Read 5509 times)

Tabaxus

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So, am I a millionaire?
« on: January 10, 2019, 10:00:10 AM »
I'm having a vigorous debate with my SO (all in good fun--it's about whether we crack our "millionaire wine" tonight).  I say no, SO says close enough, so, we are going to crowdsource.

I see the following ways to measure net worth.

1.) Pre-Tax, Include House Equity, Include college savings. 
2.) Pre-Tax, Include House Equity, Exclude college savings.
3.) Pre-Tax, Exclude house, exclude college.
4.) Post-Tax, Include house, include college.
5.) Post-Tax, Include House, exclude college.
6.) Post-tax, Exclude House, Exclude college.

#1 seems to be what a lot of people use. 

I find it hard to justify ignoring tax leakage.   And on a personal level, once I put money into my kid's 529 plan, I no longer view it as my money, even though it certainly is legally.  So my view is that #5 is the best way to look at it.

Under #1, we crack open our wine tonight.  Under #5, we do not.  Of course, we weren't over the line under any way of measuring it two weeks ago--it's all the market--so we're going to go back and forth several times.  But that wasn't the Wine Agreement!

I tried to set this up as a poll but couldn't figure out how.  But I'm interested in thoughts!  I know a lot of people exclude house equity because (a) it's very hard to measure (I'm using Zillow value, which appears deflated in my case, but w/e) and (b) it's not remotely liquid.  My house equity number is net of 7% selling costs, though.

Edit:  I forgot to add, I haven't included all of our "stuff" in any of these calculations.  Car, electronics, exercise stuff, blah blah blah. It's enough to be meaningful if we had to literally sell everything we owned to fund stuff, as it would cover probably a year of expenses or so, but I think it's silly to go to that extreme.  But in any case, it wouldn't cause us to be drinking wine tonight under #5, so.

« Last Edit: January 10, 2019, 10:01:56 AM by Tabaxus »

AdrianC

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Re: So, am I a millionaire?
« Reply #1 on: January 10, 2019, 10:08:21 AM »
For us, net worth is #2, liquid net worth is #3.

College savings is for the kids. Don't know what we'll end up paying in tax.

CoffeeAndDonuts

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Re: So, am I a millionaire?
« Reply #2 on: January 10, 2019, 10:09:30 AM »
For us, net worth is #2, liquid net worth is #3.

College savings is for the kids. Don't know what we'll end up paying in tax.

Exactly our approach.

Edited to add... Congrats regardless of whether you're just below the line or just over it!

ericrugiero

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Re: So, am I a millionaire?
« Reply #3 on: January 10, 2019, 10:11:56 AM »
#1 seems to be the accepted standard.  Personally, I would probably go with #2.  Obviously post tax dollars are worth more than pre-tax like traditional 401k but in this crowd many people have strategies to keep annual salary low enough to greatly reduce those taxes.

Might be a fun milestone but it doesn't really matter that much.  What matters is if you have enough money to do what you want to do.   


Tabaxus

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Re: So, am I a millionaire?
« Reply #4 on: January 10, 2019, 10:12:43 AM »
If you're measuring "liquid" net worth, why are you (presumably) including money in retirement accounts that is only liquid (if at all) on penalty of serious pain and taxes? 

I do a liquid net worth calc too, but that one is super easy:  it's #6 (if you're saying it's liquid, you should know what the immediate tax would be), with retirement accounts backed out.  I suppose if you wanted to really go for it you could do #6A where you include retirement accounts but figure out what your tax would be if you prematurely liquidated the retirement accounts.

And thanks for the congrats!  But I will say, once you back out 529 plan ($60k) and tax hit on unrealized appreciation and 401(k) money, I'm $150k short.  So it's a big difference!

(And we completely agree that it's a milestone without much meaning.  We need meaningfully more than $1M to be where we want to be, not to mention we're at least $140k short on our overall college saving goal.  But it's still fun and, we think, a justification to open one of our few very good bottles of wine.)
« Last Edit: January 10, 2019, 10:15:36 AM by Tabaxus »

bbates728

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Re: So, am I a millionaire?
« Reply #5 on: January 10, 2019, 10:32:42 AM »
Pick number 3 my lord (holds up two fingers)!!

In all seriousness, I go with number 3 as I don't expect to use my future house or college funds for my 4% withdrawals. That is what I am most concerned about; making my investments pay my way. Housing and college don't count to that.

charis

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Re: So, am I a millionaire?
« Reply #6 on: January 10, 2019, 10:45:19 AM »
To me, being a millionaire includes balance of cash and investment accounts.  I would pick pre-tax with college savings, not equity (because I am not planning to sell my house).  I might not use the college savings in a 4% withdrawal, but that relates to FIRE, not "millionaire" status.  It's still my money, and college is an expense that I will be paying, in some capacity, whether the money is in a 529 or not.

JGS1980

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Re: So, am I a millionaire?
« Reply #7 on: January 10, 2019, 11:13:17 AM »
I pick number 1

If shit hits the fan, and you had no other option, would you sell your house for CASH and liquidate the college savings account?  I would.

Thus, it's included in my net worth, regardless of whether I plan to use it to achieve FIRE.

My 2 cents,

JGS

Tabaxus

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Re: So, am I a millionaire?
« Reply #8 on: January 10, 2019, 11:35:24 AM »
I pick number 1

If shit hits the fan, and you had no other option, would you sell your house for CASH and liquidate the college savings account?  I would.

Thus, it's included in my net worth, regardless of whether I plan to use it to achieve FIRE.

My 2 cents,

JGS

I can def. see this logic.  But for people that take the SHTF approach to this, I don't see the justification for not including taxes.  The justification for not including taxes is that you can't know how much in tax you'll actually have to pay when you use the money in the future.  But if you're looking at your available funds today, you can actually do a pretty good job of backing the tax cost associated with liquidating the funds.

zolotiyeruki

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Re: So, am I a millionaire?
« Reply #9 on: January 10, 2019, 11:36:58 AM »
This thread needs a poll.

Personally, I'll toss my vote towards #3.  The reason is this:  If you start with $1.1m and you spend $1m on anything, IMO you're no longer a millionaire.  It doesn't matter whether you spent that $1m on a house, a car collection, a yacht, or 1000 iPhones.  Now, if you sell that stuff for $1m, then you're a millionaire again. 

This is different from what I would count when determining net worth.

Pick number 3 my lord (holds up two fingers)!!
Heh, good times:

bluebelle

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Re: So, am I a millionaire?
« Reply #10 on: January 10, 2019, 11:53:41 AM »
I use #1 (don't have kids, so #2 is the same) to declare we're millionares....and we needed 2 million to claim I'm a millionaire, since DH has half.  He wouldn't let me call us millionaires until we had a net worth greater than $2 million.

For my retirement planning I use #3 since our retirement house will be approximately the same value as current home, but I assume I'm selling my house at 90, so I add a $ amount back in then.

Tabaxus

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Re: So, am I a millionaire?
« Reply #11 on: January 10, 2019, 01:38:03 PM »
I use #1 (don't have kids, so #2 is the same) to declare we're millionares....and we needed 2 million to claim I'm a millionaire, since DH has half.  He wouldn't let me call us millionaires until we had a net worth greater than $2 million.

For my retirement planning I use #3 since our retirement house will be approximately the same value as current home, but I assume I'm selling my house at 90, so I add a $ amount back in then.

Harsh!

the_fixer

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Re: So, am I a millionaire?
« Reply #12 on: January 10, 2019, 01:44:23 PM »
Why make it so complicated it is typically your total assets minus liabilities.

Say you have 500k in investments
A 1 million dollar house with a 400k mortgage
2 cars worth 50k each free and clear

= 1.2million

If you were to be squished by a truck today how much would everything be worth.



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Mississippi Mudstache

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Re: So, am I a millionaire?
« Reply #13 on: January 10, 2019, 01:45:42 PM »
There is no rationale for reducing your net worth by assuming future "taxes" that are not currently due. You also will eat food in the future even though your pantry is currently full. Should you also reduce your net worth by your projected food budget? You will have to pay your mortgage in the future even though your note is currently up-to-date. Reduce net worth by that as well? Ah, but you will earn investment returns on your investments in the future! Be sure to add those to your net worth!

No. Taxes are an expense, just like everything else that you spend money on. They reduce your net worth when you pay them. Your net worth is #1. That's not necessarily your FIRE number, but that's okay!

Also, CONGRATULATIONS ON BEING A MILLIONAIRE! (maybe)

seattlecyclone

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Re: So, am I a millionaire?
« Reply #14 on: January 10, 2019, 01:46:26 PM »
I see where you're coming from with the idea of discounting assets to their post-tax value, but this is such a variable thing. What liquidation schedule are you considering for this purpose? Due to our progressive tax code, the amount you'd get to keep after taxes could be quite a bit lower if you liquidated everything today compared to if you did half a couple of weeks ago and the other half today, which could in turn be lower than if you liquidated 4% each year in perpetuity.

MrThatsDifferent

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Re: So, am I a millionaire?
« Reply #15 on: January 10, 2019, 01:47:34 PM »
Iím going to go with the person who said, itís the number you withdraw your 4% from (which should be continually topped up). You canít get your 4% from your house until you sell it and the 529 is the kids money, just a tax vehicle for you. Iím not sure what option that is.

bluebelle

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Re: So, am I a millionaire?
« Reply #16 on: January 10, 2019, 02:06:37 PM »
I use #1 (don't have kids, so #2 is the same) to declare we're millionares....and we needed 2 million to claim I'm a millionaire, since DH has half.  He wouldn't let me call us millionaires until we had a net worth greater than $2 million.

For my retirement planning I use #3 since our retirement house will be approximately the same value as current home, but I assume I'm selling my house at 90, so I add a $ amount back in then.

Harsh!
He's the spendypants in the family....so the longer he thinks he's "poor" the better.....He actually tries to tell me we're not even middle class, when based on net worth and income, we're in upper middle.  I'm a little vague of what his definition of middle class is....  :-)

Dabnasty

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Re: So, am I a millionaire?
« Reply #17 on: January 10, 2019, 02:20:05 PM »
My opinion is that a millionaire is a person who has $1 million*. Therefore I would go with #7 - Pre tax, exclude house, include college. Like you said, the 529 is still your money so I would count it. How certain are you that your kid(s) will be going to college anyway?

The house is not made of dollars, so I wouldn't count that. In fact I would subtract the balance of your mortgage, borrowed money is not your money.


*With the exception of owning stock. If we didn't count that, most of us would never have millionaire wine

Acorns

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Re: So, am I a millionaire?
« Reply #18 on: January 10, 2019, 04:14:25 PM »
What about equity in rental property? I think of all cash and investments (savings account, retirement savings [both pre- and post-tax], 529, etc) as a part of my households liquid net worth. I think of that + equity in rental properties as total net worth, I never count the value of my primary residence because I can't easily convert that equity to usable dollars.

If this was a poll we would also possibly need to add in an option for future value of a pension, which some people roll into their net worth. So, many ways to calculate a net worth number.

aspiringnomad

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Re: So, am I a millionaire?
« Reply #19 on: January 10, 2019, 04:38:58 PM »
There is no rationale for reducing your net worth by assuming future "taxes" that are not currently due. You also will eat food in the future even though your pantry is currently full. Should you also reduce your net worth by your projected food budget? You will have to pay your mortgage in the future even though your note is currently up-to-date. Reduce net worth by that as well? Ah, but you will earn investment returns on your investments in the future! Be sure to add those to your net worth!

No. Taxes are an expense, just like everything else that you spend money on. They reduce your net worth when you pay them. Your net worth is #1. That's not necessarily your FIRE number, but that's okay!

Also, CONGRATULATIONS ON BEING A MILLIONAIRE! (maybe)

This is correct.

AccidentialMustache

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Re: So, am I a millionaire?
« Reply #20 on: January 10, 2019, 05:31:17 PM »
It depends what you're measuring. "Hey we're millionaires!" sounds like net worth. That's pre-tax, include house, minus debts, and you can debate if it includes the 529. I think the answer is probably "yes" to include the 529 if you plan on paying any of your kid's schooling (college or otherwise), because that's money you'd spend anyway, you only have it there for the tax advantage. If you have a 529, sounds like you plan on paying for that, so it doesn't matter where the money is, you plan to pay. You aren't deducting any you plan to pay over the 529, so you shouldn't exclude the 529 itself.

"Hey we're accredited investors!" I think requires excluding your home. Possibly excluding 529s too.

nereo

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Re: So, am I a millionaire?
« Reply #21 on: January 10, 2019, 06:31:36 PM »
Personally... I do not consider the money we've put away for our child's college to be ours anymore.  It belongs to our kid
Sure, technically as a custodian I could liquidate it, but that's not what it's for.

Taxes - meh - once we stop working our taxable burden is going to be pretty minimal so I'm not about to get that granular.

I only count home equity when the sale of my home is eminent. 

Tabaxus

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Re: So, am I a millionaire?
« Reply #22 on: January 10, 2019, 07:03:50 PM »
We decided to compromise.  We're going to wait to drink our millionaire wine (which is a bottle of very good, very expensive Malbec that we bought on a trip to wine country we took years ago).  But we did open a compromise bottle from Trader Joes!  $3-buck-chuck-ionaires!

EnjoyIt

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Re: So, am I a millionaire?
« Reply #23 on: January 10, 2019, 08:20:09 PM »
Including your real estate or not is up to you.  But trying to figure in taxes is ridiculous if not impossible.  More than likely you will be paying $0 to very little taxes when you retire.  There is a great post on bogleheads.org by Livesoft who shows how one can live on $100k/yr and still pay $0 in taxes.

DreamFIRE

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Re: So, am I a millionaire?
« Reply #24 on: January 10, 2019, 08:36:50 PM »

3.) Pre-Tax, Exclude house, exclude college.


PhilB

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Re: So, am I a millionaire?
« Reply #25 on: January 11, 2019, 02:19:03 AM »
Easy.  It's when the number that you are actually tracking gets a seventh digit.  For most people that wouldn't include the value of their house, but I'd say it should include any mortgage balance - obviously that needs to be tweaked if your plans include moving to a much cheaper house in retirement or you have a rental portfolio.  Future taxes are unlikely to be included in the numbers you actually track (although definitely considered in your spreadsheet).  Anything else is down to individual circumstances.
Personally our total net worth is probably over £2M, but I don't include house equity or an imputed value of future DB pensions as neither is sufficiently relevant to warrant regular tracking.  The number I track is net cash and investments using the headline numbers without trying to tweak them for future taxes etc.  On those numbers we stopped being millionaires when this latest downturn happened :o(

soccerluvof4

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Re: So, am I a millionaire?
« Reply #26 on: January 11, 2019, 03:34:59 AM »

3.) Pre-Tax, Exclude house, exclude college.





+1. College is an expense trust me,  and you have to pay to live somewhere.

Car Jack

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Re: So, am I a millionaire?
« Reply #27 on: January 11, 2019, 06:41:00 AM »
The answer is that the two of you need to agree on what the goal is.

To me, net worth is a meaningless number.  Meaningless.  And it's likely wrong.  Don't believe me?  What do people say it's used for?  If we're hit by a bus and our stuff has to be liquidated, what would the final $$ be?

Well, what's the tax on the liquid assets?  Subtract that.
Household items?  I'm laughing.  I've liquidated for relatives who have passed.  I hold a huge yard sale as we're cleaning the house.  A beer bottle box goes for $5 in the morning and $1 in the afternoon.  We have the house cleaned out in 2 days and clear $250.  Relatives ain't got time for getting top dollar for your Nordic Track.
Cars?  They're going to Car Max for whatever they can get.
The house?  It's getting sold as is for the low end of market value to turn it into cash as soon as possible.  We recently did this with a relative's house 35 miles out of Boston.  Took the offer of $130k.  Nobody's going to be a hold out to get $200k and spend a year cleaning out the place and spending money to fix it up.

C/N:  Your stuff is worth far less than you think it is.

abbysmom

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Re: So, am I a millionaire?
« Reply #28 on: January 11, 2019, 07:21:23 AM »
I use No. 3 as money for the grandchildren is theirs, and our house is where we live, and if we sold it, we'd have to buy another house.

the_fixer

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Re: So, am I a millionaire?
« Reply #29 on: January 11, 2019, 07:30:06 AM »
I there a standard accepted method that accountants, CPA's and such use or are taught to use?

I would think that would be the official definition of course each person can track it however they want but that would just be a deviation from the accepted standard if one exists.

For example

https://www.accountingtools.com/articles/2017/5/12/net-worth

http://www.finra.org/investors/know-your-net-worth


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« Last Edit: January 11, 2019, 07:38:56 AM by the_fixer »

Bateaux

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Re: So, am I a millionaire?
« Reply #30 on: January 13, 2019, 12:38:15 AM »
My personal definition would be 6?  Hell, I don't know.   I don't include stuff in my Net Worth.   Stuff is houses, cars, food in the pantry among other things.   I don't know what any of the stuff is worth.  The definition will likely change based on who owns the stuff.  By any definition I'm a millionaire.   I was a twice millionaire until recently.   Maybe if the market recovery continues I'll be a twice millionaire again.  I really don't feel like a millionaire.   Not sure I want to know.  Mentally I'm just a middle-aged version of who I've always been. 

BookLoverL

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Re: So, am I a millionaire?
« Reply #31 on: January 13, 2019, 05:33:52 AM »
I'd go for 6 as well. If it's not money that you'd be able to get your hands on and spend if you suddenly had a really strange emergency that cost a million dollars, do you really have it? House prices are all theoretical until you actually sell.

If I had a house, rather than listing my net worth in one figure as total cash + market value of house, I'd list it as "total cash, plus a house" or something. Same with my other possessions.

So right now (I don't have a house right now), my net worth is a list that reads something like:

£money that's in bank accounts/investment accounts/cash
car
book collection
laptop
saucepans
clothes
etc.

It's good to have an idea of what money you COULD get for your house and possessions if you sold them, but since the price isn't locked in until you sell them, I think it's misleading to roll everything into one figure.

Much Fishing to Do

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Re: So, am I a millionaire?
« Reply #32 on: January 13, 2019, 07:33:38 AM »
I track closely both Net Worth and Total Retirement Investments (money earmarked for retirement distributions whether its a retirement or taxable account), the first is better for me to do month to month comparisons wrt to improving status (If I throw an extra $10k to a mortgage that should show up somehow as me improving my financial state, if I throw $10k in a 529 that should show up as an improvement on my finances) but the second is the one I look when thinking about if I'm FIRED.  It seemed more natural to think of being a millionaire as having $1M in the retirement investments to us as that means an account that would provide us with $40k/year, etc, etc.  Picturing taxes as anything other than another expense (and not a huge one in FIRE) seems to take away from this simplicity so never really considered it.

I guess if we thought of "being a millionaire" in more of a sense of having cool stuff we'd include home equity, etc, so I guess it really points more toward us thinking of it as having a pot of money one can live off of.

« Last Edit: January 13, 2019, 07:35:28 AM by Much Fishing to Do »

radram

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Re: So, am I a millionaire?
« Reply #33 on: January 13, 2019, 08:09:21 AM »
Dictionary.com had a terrible(and absolutely WRONG) definition of millionaire: a person whose assets are worth one million dollars or more.

By this definition, a person with a million dollar house with a 5 million dollar mortgage and nothing else in the world is a millionaire. Absolutely ridiculous.

I have always believed the generally accepted definition of a millionaire is a million of net worth. That is ALL assets minus ALL liabilities. When counting assets, it would be expected value if sold, so it is very much an estimate. Most people don't bother to include personal property and just use a ballpark, like $5,000 for all home furnishings, for example.

I would exclude the college money, since it has a dedicated purpose(and therefore a liability). If your child does not go to college, you would need to decide to give it to someone else, or cash it in and spend it. In the latter case, you would add to your net worth the current value, minus taxes and fees to be able to spend it.

I agree that the term millionaire has NOTHING to do with a FIRE number, or 4% SWR or the like. A millionaire can very well be 5 million or more away from being FIRE based on spending and use of funds(like a house that consumes too much of a net worth).

AlexMar

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Re: So, am I a millionaire?
« Reply #34 on: January 14, 2019, 11:39:03 AM »
Always include your home equity in your net worth calculation.  I don't understand why anyone would discount that at all.  Many (me included) use their home as a vehicle to store their wealth.  So how silly would it be to pretend that wealth doesn't exist.  Makes no sense at all.   It's ALL of your assets minus all of your liabilities.  radram explains it clearly enough.

partgypsy

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Re: So, am I a millionaire?
« Reply #35 on: January 14, 2019, 12:06:44 PM »
I always thought it was net worth, all assets minus liabilities. #2 for me. I am including house equity, but I don't include set-aside college monies in 529 nor things like cars, valuables, and my cool postcard collection.

Most likely, net worth is NOT what people are tracking for retirement. I track what I spend every month, so I know what my spend rate is. I track what is in my retirement account. I have an idea of what I will get from soc sec, pension, so I know what my target for retirement is (how much to have in my retirement account).

If my net worth (assets minus liabilities) reached a million I would crack a bottle of champagne, but unlikely to happen! in my lifetime)


nereo

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Re: So, am I a millionaire?
« Reply #36 on: January 14, 2019, 12:15:27 PM »
Always include your home equity in your net worth calculation.  I don't understand why anyone would discount that at all.  Many (me included) use their home as a vehicle to store their wealth.  So how silly would it be to pretend that wealth doesn't exist.  Makes no sense at all.   It's ALL of your assets minus all of your liabilities.  radram explains it clearly enough.
If I were to calculate my net worth I would include my house.
However, I wouldn't use my net worth to determine whether I am a millionaire.   For that I'd include only easily liquidated investments (e.g. index funds, bonds and cash) minus any that are earmarked for an upcoming expense (e.g. 529 funds, replace-the-roof outlay). 

There are a great number of people who might be considered millionaires if they included the equity on their homes but have only a few hundred thousand$ in savings.  Likewise, some include their cars, wardrobe, antique china etc. to show they have a really big NW.  To me that misses the point of saying "I'm a millionaire" if that money has already been exchanged for goods - you don't really have a million dollars, you have a million dollars worth of stuff.  Not the same thing.

Use whichever method makes sense to you.  excluding your home and other material possessions is certainly a much higher bar.  Of course someone with $1MM in VATSX who owns their own home will have more discretionary income that another who has a similar amount but rents.

The important question is really: "do you have enough"?



charis

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Re: So, am I a millionaire?
« Reply #37 on: January 14, 2019, 12:36:31 PM »
I don't understand the idea of not counting funds that are earmarked for an upcoming expense.  The fact that the money is planned to be spent later doesn't mean it doesn't exist.  In my mind, "millionaire" is just a label that means you own/have a million dollars.  Not sure why there would need to be special restrictions based on how you are planning to spend it.  It's the same as saying, I have a million dollars now, but I plan to spend it on living expenses over the next 40 years so it I'm not a millionaire.  House worth is not actually money, so that's why I wouldn't count it.

nereo

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Re: So, am I a millionaire?
« Reply #38 on: January 14, 2019, 12:55:12 PM »
I don't understand the idea of not counting funds that are earmarked for an upcoming expense.  The fact that the money is planned to be spent later doesn't mean it doesn't exist.  In my mind, "millionaire" is just a label that means you own/have a million dollars.  Not sure why there would need to be special restrictions based on how you are planning to spend it.  It's the same as saying, I have a million dollars now, but I plan to spend it on living expenses over the next 40 years so it I'm not a millionaire.  House worth is not actually money, so that's why I wouldn't count it.
As I said, it's a personal and rather arbitrary decision.
REgarding why I don't include 529 funds - those are set aside and promised to someone else.  Reagrding a replace-the-roof fund, that (or similar expenses) will soon be gone, and since I wouldn't calculate the value of my home or car or powertool collection I consider that money already spent (even if it won't happen for a few more months).
To each their own...

partgypsy

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Re: So, am I a millionaire?
« Reply #39 on: January 14, 2019, 01:49:01 PM »
I don't understand the idea of not counting funds that are earmarked for an upcoming expense.  The fact that the money is planned to be spent later doesn't mean it doesn't exist.  In my mind, "millionaire" is just a label that means you own/have a million dollars.  Not sure why there would need to be special restrictions based on how you are planning to spend it.  It's the same as saying, I have a million dollars now, but I plan to spend it on living expenses over the next 40 years so it I'm not a millionaire.  House worth is not actually money, so that's why I wouldn't count it.

A friend of mine has 0 in retirement accounts, but owns many houses. Some houses have a mortgage, some are completely paid off. His income is the rental income. According to your reasoning you would say he has 0 net worth, since "house worth" is not actually money? That doesn't make sense. In turn I have my house as part of my net worth, because it would be equally silly to assume it has no value. Houses in my neighborhood generally sell within a week, or if a very expensive house, a month after being listed. In a way my house is more liquid than stuff in my retirement account, because I would have to pay high fees for early withdrawal. Stock market value is also theoretical until you sell it, hence why people update their net worth values periodically.   
« Last Edit: January 14, 2019, 01:53:36 PM by partgypsy »

nereo

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Re: So, am I a millionaire?
« Reply #40 on: January 14, 2019, 02:33:29 PM »
I don't understand the idea of not counting funds that are earmarked for an upcoming expense.  The fact that the money is planned to be spent later doesn't mean it doesn't exist.  In my mind, "millionaire" is just a label that means you own/have a million dollars.  Not sure why there would need to be special restrictions based on how you are planning to spend it.  It's the same as saying, I have a million dollars now, but I plan to spend it on living expenses over the next 40 years so it I'm not a millionaire.  House worth is not actually money, so that's why I wouldn't count it.

A friend of mine has 0 in retirement accounts, but owns many houses. Some houses have a mortgage, some are completely paid off. His income is the rental income. According to your reasoning you would say he has 0 net worth, since "house worth" is not actually money? That doesn't make sense. In turn I have my house as part of my net worth, because it would be equally silly to assume it has no value. Houses in my neighborhood generally sell within a week, or if a very expensive house, a month after being listed. In a way my house is more liquid than stuff in my retirement account, because I would have to pay high fees for early withdrawal. Stock market value is also theoretical until you sell it, hence why people update their net worth values periodically.
No. That isnít what I said. Your friend would have a very high net worth, with a large cash flow.  I, personally, do not use NE when determining whether someone is a millionaire.

frugalnacho

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Re: So, am I a millionaire?
« Reply #41 on: January 15, 2019, 07:02:47 AM »
I don't understand why you would exclude your home equity in deciding.  If I have $800k cash and a $200k home, I'm not a millionaire?  But If I sell my house so I have $1M cash and I now rent then I am a millionaire?  It makes no fucking sense, it's the exact same net worth you just have a portion of it in home equity instead of cash/investments. 

I vote #2. I have multiple accounts set up for my son and nieces and nephews.  It's not a 529 plan or anything, just brokerage accounts I am investing in and will gift to them after age 18.  Legally and technically it's my money, but for all intents and purposes it's not my money and I exclude it when considering my net worth.  But I do include my home equity because it is mine and I could easily convert it to cash.

charis

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Re: So, am I a millionaire?
« Reply #42 on: January 15, 2019, 09:13:25 AM »
I don't understand the idea of not counting funds that are earmarked for an upcoming expense.  The fact that the money is planned to be spent later doesn't mean it doesn't exist.  In my mind, "millionaire" is just a label that means you own/have a million dollars.  Not sure why there would need to be special restrictions based on how you are planning to spend it.  It's the same as saying, I have a million dollars now, but I plan to spend it on living expenses over the next 40 years so it I'm not a millionaire.  House worth is not actually money, so that's why I wouldn't count it.

A friend of mine has 0 in retirement accounts, but owns many houses. Some houses have a mortgage, some are completely paid off. His income is the rental income. According to your reasoning you would say he has 0 net worth, since "house worth" is not actually money? That doesn't make sense. In turn I have my house as part of my net worth, because it would be equally silly to assume it has no value. Houses in my neighborhood generally sell within a week, or if a very expensive house, a month after being listed. In a way my house is more liquid than stuff in my retirement account, because I would have to pay high fees for early withdrawal. Stock market value is also theoretical until you sell it, hence why people update their net worth values periodically.

I wasn't talking about net worth.  I also count my home equity in my net worth.

AlexMar

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Re: So, am I a millionaire?
« Reply #43 on: January 16, 2019, 06:08:45 AM »
Always include your home equity in your net worth calculation.  I don't understand why anyone would discount that at all.  Many (me included) use their home as a vehicle to store their wealth.  So how silly would it be to pretend that wealth doesn't exist.  Makes no sense at all.   It's ALL of your assets minus all of your liabilities.  radram explains it clearly enough.
If I were to calculate my net worth I would include my house.
However, I wouldn't use my net worth to determine whether I am a millionaire.   For that I'd include only easily liquidated investments (e.g. index funds, bonds and cash) minus any that are earmarked for an upcoming expense (e.g. 529 funds, replace-the-roof outlay). 

There are a great number of people who might be considered millionaires if they included the equity on their homes but have only a few hundred thousand$ in savings.  Likewise, some include their cars, wardrobe, antique china etc. to show they have a really big NW.  To me that misses the point of saying "I'm a millionaire" if that money has already been exchanged for goods - you don't really have a million dollars, you have a million dollars worth of stuff.  Not the same thing.

Use whichever method makes sense to you.  excluding your home and other material possessions is certainly a much higher bar.  Of course someone with $1MM in VATSX who owns their own home will have more discretionary income that another who has a similar amount but rents.

The important question is really: "do you have enough"?


I disagree.  Paying off a house is as much an investment as investing in a bond fund.  You can keep an equity line on your house if you need easy access to the funds.  But you think one makes you a millionaire the other not?  "Stocks" are "stuff", too.  So by your definition, you have to have a million dollars in cash to be a millionaire (which would be a terrible idea).  As I mentioned, I made the decision to put a ton of my cash in to my house to store it (and protect it via homestead) and get the guaranteed return of paying off the mortgage.  I could have kept the cash or put it in stocks.  That would make me no less a millionaire than anyone else.  I just store my funds in a different way.

You should absolutely count the REAL value of your cars and anything else, too.  That's the entire point.  If you liquidated everything, how much cash would you have?  I have a neighbor that literally stores some of his wealth in classic cars that appreciate in value.  He jokes that it's his 401k.  He absolutely plans on selling them at retirement time to cash them out.  Likewise, if you own a car that you can sell for $30k (and no loan) - why wouldn't that count?

Point is, people store their wealth in many different ways.  It doesn't make them any less wealthy.
« Last Edit: January 16, 2019, 06:14:26 AM by AlexMar »

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Re: So, am I a millionaire?
« Reply #44 on: January 16, 2019, 06:32:55 AM »
Everyone is born short one home. I have covered that short position as quickly as possible. :)

nereo

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Re: So, am I a millionaire?
« Reply #45 on: January 16, 2019, 06:47:47 AM »
Always include your home equity in your net worth calculation.  I don't understand why anyone would discount that at all.  Many (me included) use their home as a vehicle to store their wealth.  So how silly would it be to pretend that wealth doesn't exist.  Makes no sense at all.   It's ALL of your assets minus all of your liabilities.  radram explains it clearly enough.
If I were to calculate my net worth I would include my house.
However, I wouldn't use my net worth to determine whether I am a millionaire.   For that I'd include only easily liquidated investments (e.g. index funds, bonds and cash) minus any that are earmarked for an upcoming expense (e.g. 529 funds, replace-the-roof outlay). 

There are a great number of people who might be considered millionaires if they included the equity on their homes but have only a few hundred thousand$ in savings.  Likewise, some include their cars, wardrobe, antique china etc. to show they have a really big NW.  To me that misses the point of saying "I'm a millionaire" if that money has already been exchanged for goods - you don't really have a million dollars, you have a million dollars worth of stuff.  Not the same thing.

Use whichever method makes sense to you.  excluding your home and other material possessions is certainly a much higher bar.  Of course someone with $1MM in VATSX who owns their own home will have more discretionary income that another who has a similar amount but rents.

The important question is really: "do you have enough"?


I disagree.  Paying off a house is as much an investment as investing in a bond fund.  You can keep an equity line on your house if you need easy access to the funds.  But you think one makes you a millionaire the other not?  "Stocks" are "stuff", too.  So by your definition, you have to have a million dollars in cash to be a millionaire (which would be a terrible idea).  As I mentioned, I made the decision to put a ton of my cash in to my house to store it (and protect it via homestead) and get the guaranteed return of paying off the mortgage.  I could have kept the cash or put it in stocks.  That would make me no less a millionaire than anyone else.  I just store my funds in a different way.

You should absolutely count the REAL value of your cars and anything else, too.  That's the entire point.  If you liquidated everything, how much cash would you have?  I have a neighbor that literally stores some of his wealth in classic cars that appreciate in value.  He jokes that it's his 401k.  He absolutely plans on selling them at retirement time to cash them out.  Likewise, if you own a car that you can sell for $30k (and no loan) - why wouldn't that count?

Point is, people store their wealth in many different ways.  It doesn't make them any less wealthy.
*should* I?  I don't.  That's my personal preference.  Others do.  C'est la vie.

Regarding "stuff" (e.g. cars, jewelry, furnishings, antique swords...) people routinely overestimate its current value and underestimate how much time and effort it will take to find a buyer.  With stocks you do not have that problem.  Further, for the most part people have this 'stuff' because they want to use it - it serves a particular purpose in their daily lives.  If they sold (for example) their car(s) that would impact their mobility.  When its being held as an investment (such as your friends antique car collection) with an intent to sell, that becomes a different story, but IME is an outlier.

On a broader level I chose not to count home equity because I've met so many people who are house rich and cash poor. It was particularly evident where I lived in coastal California.  There are quite a few 'paper millionaires' that couldn't scrap together $100k in 1 month without taking on debt or moving out of their home.  Some struggled to cover a $1k car repair even though their home (bought in the 1960s) was appraised at over a million bucks.  One might argue they could sell their home and then qualify to be a millionaire under my accounting (true), but few would because they can't afford to live anywhere else local, and they don't or can't leave their community.

Ultimately I view a 'millionaire' as someone who could pay $1MM for something without becoming completely destitute or putting themselves deeply in debt, or taking money promised to someone else (e.g. 529 accounts).  But everyone, it seems, has their own definition - that's the point of this thread, it seems.

partgypsy

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Re: So, am I a millionaire?
« Reply #46 on: January 16, 2019, 08:10:21 AM »
It does psychologically seem different, but owning a million dollar house in California, is still, owning a million dollar house in California. While that person may still prefer to live in that location and not sell, it can be liquidated for cash  pretty easily. I had a friend whose husband in the 90's got a job in California (Silicon Valleyish). They stayed for around 5 years, decided they wanted to move back in the Triangle (NC). As a mutual friend who lives in a middle class house near the Triangle explained, for what they sold their house in California for, they could have bought every house on her block.
 

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Re: So, am I a millionaire?
« Reply #47 on: January 16, 2019, 02:31:48 PM »
It does psychologically seem different, but owning a million dollar house in California, is still, owning a million dollar house in California. While that person may still prefer to live in that location and not sell, it can be liquidated for cash  pretty easily. I had a friend whose husband in the 90's got a job in California (Silicon Valleyish). They stayed for around 5 years, decided they wanted to move back in the Triangle (NC). As a mutual friend who lives in a middle class house near the Triangle explained, for what they sold their house in California for, they could have bought every house on her block.
 

Exactly.  You could sell a $1.5M house and buy a $100k house.  Fees and all, still have $1.3+ million in cash.  So how is a person who owns a $1.5M house not a millionaire?  Makes no sense!

I use myself as an example.  I have under $1M in stocks/cash but about $2M in real estate including a paid off $1.5M house.  I paid it off on purpose as homestead laws where I live protect every penny of those funds.  It was a guaranteed 4.5% return (mortgage interest) and protected from creditors.  In a way, it's my fire money nice and safe (as can be, real estate could crash).  It's as much an investment as a stock portfolio.  I could sell it and FIRE in my other house easily.  But apparently I'm not a millionaire?  Lol.  Ok.

It seems your friends did about the same thing when they moved to NC.  That's essentially what I'm talking about.  I have an expensive home in a HCOL area and a second home in a very LCOL area that I would love to move to full time once I retire.  I'll be cashing out the big house and leaving town.

AlexMar

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Re: So, am I a millionaire?
« Reply #48 on: January 16, 2019, 02:35:39 PM »
Always include your home equity in your net worth calculation.  I don't understand why anyone would discount that at all.  Many (me included) use their home as a vehicle to store their wealth.  So how silly would it be to pretend that wealth doesn't exist.  Makes no sense at all.   It's ALL of your assets minus all of your liabilities.  radram explains it clearly enough.
If I were to calculate my net worth I would include my house.
However, I wouldn't use my net worth to determine whether I am a millionaire.   For that I'd include only easily liquidated investments (e.g. index funds, bonds and cash) minus any that are earmarked for an upcoming expense (e.g. 529 funds, replace-the-roof outlay). 

There are a great number of people who might be considered millionaires if they included the equity on their homes but have only a few hundred thousand$ in savings.  Likewise, some include their cars, wardrobe, antique china etc. to show they have a really big NW.  To me that misses the point of saying "I'm a millionaire" if that money has already been exchanged for goods - you don't really have a million dollars, you have a million dollars worth of stuff.  Not the same thing.

Use whichever method makes sense to you.  excluding your home and other material possessions is certainly a much higher bar.  Of course someone with $1MM in VATSX who owns their own home will have more discretionary income that another who has a similar amount but rents.

The important question is really: "do you have enough"?


I disagree.  Paying off a house is as much an investment as investing in a bond fund.  You can keep an equity line on your house if you need easy access to the funds.  But you think one makes you a millionaire the other not?  "Stocks" are "stuff", too.  So by your definition, you have to have a million dollars in cash to be a millionaire (which would be a terrible idea).  As I mentioned, I made the decision to put a ton of my cash in to my house to store it (and protect it via homestead) and get the guaranteed return of paying off the mortgage.  I could have kept the cash or put it in stocks.  That would make me no less a millionaire than anyone else.  I just store my funds in a different way.

You should absolutely count the REAL value of your cars and anything else, too.  That's the entire point.  If you liquidated everything, how much cash would you have?  I have a neighbor that literally stores some of his wealth in classic cars that appreciate in value.  He jokes that it's his 401k.  He absolutely plans on selling them at retirement time to cash them out.  Likewise, if you own a car that you can sell for $30k (and no loan) - why wouldn't that count?

Point is, people store their wealth in many different ways.  It doesn't make them any less wealthy.
*should* I?  I don't.  That's my personal preference.  Others do.  C'est la vie.

Regarding "stuff" (e.g. cars, jewelry, furnishings, antique swords...) people routinely overestimate its current value and underestimate how much time and effort it will take to find a buyer.  With stocks you do not have that problem.  Further, for the most part people have this 'stuff' because they want to use it - it serves a particular purpose in their daily lives.  If they sold (for example) their car(s) that would impact their mobility.  When its being held as an investment (such as your friends antique car collection) with an intent to sell, that becomes a different story, but IME is an outlier.

On a broader level I chose not to count home equity because I've met so many people who are house rich and cash poor. It was particularly evident where I lived in coastal California.  There are quite a few 'paper millionaires' that couldn't scrap together $100k in 1 month without taking on debt or moving out of their home.  Some struggled to cover a $1k car repair even though their home (bought in the 1960s) was appraised at over a million bucks.  One might argue they could sell their home and then qualify to be a millionaire under my accounting (true), but few would because they can't afford to live anywhere else local, and they don't or can't leave their community.

Ultimately I view a 'millionaire' as someone who could pay $1MM for something without becoming completely destitute or putting themselves deeply in debt, or taking money promised to someone else (e.g. 529 accounts).  But everyone, it seems, has their own definition - that's the point of this thread, it seems.

House rich is still.... RICH.  But if you have your own arbitrary requirements about where you must have your funds stored, then I don't know what to say.  Sorry, I put them in the wrong place.  Guess I'm not rich anymore.

BookLoverL

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Re: So, am I a millionaire?
« Reply #49 on: January 16, 2019, 03:16:43 PM »
I still think it makes more sense to list it as, say, "$10,000 dollars and x square feet of house with y bathrooms" or something. Maybe it's just me.