Author Topic: How do I work out my net worth?  (Read 5440 times)

martynthewolf

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How do I work out my net worth?
« on: January 31, 2013, 02:54:00 AM »
So, yeah I'm totally new to all this kind of financial planning and this is a really basic question but I have to start somewhere. I think what I need to do is first work out what my current net worth is, however I have no idea about where to start with this.

Do any of you experienced MMMs have some good resources to point me to. I'll also be setting up a spread sheet that is more in depth than my current 'loose' incomings/outgoing sheet that I currently have.

marty998

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Re: How do I work out my net worth?
« Reply #1 on: January 31, 2013, 03:18:24 AM »
In simple terms it's things you have minus things you owe.

Value of house + value of investments + value of business + value of retirement accounts/savings + cash at bank + the 5c behind your couch - mortgage - credit cards - student loans - personal loans - investment loans - car loans - any other debt

Notice I include a car loan but not the car. I'm one of those people who believes they are a liability because if you own one you are going to be up for rego, CTP, insurance, R&M, fuel etc etc

If your only blue item is the 5c, you need to get your groove on.

Some people exclude their house/mortgage to get an idea of what their income generating/investment net worth is.


martynthewolf

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Re: How do I work out my net worth?
« Reply #2 on: January 31, 2013, 03:47:22 AM »
In simple terms it's things you have minus things you owe.

Value of house + value of investments + value of business + value of retirement accounts/savings + cash at bank + the 5c behind your couch - mortgage - credit cards - student loans - personal loans - investment loans - car loans - any other debt

Notice I include a car loan but not the car. I'm one of those people who believes they are a liability because if you own one you are going to be up for rego, CTP, insurance, R&M, fuel etc etc

If your only blue item is the 5c, you need to get your groove on.

Some people exclude their house/mortgage to get an idea of what their income generating/investment net worth is.



Cheers, marty I think that's what I expected. Even though I know I'm going to be on the red side at the minute, seeing the actual figure will be the punch in the face I need. I'll get looking at it tonight after work. I presume I don't include my monthly salary in this calculation?

arebelspy

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Re: How do I work out my net worth?
« Reply #3 on: January 31, 2013, 06:14:13 AM »
No, salary is irrelevant.   You could be investing all that in hookers and blow, and have nothing but good times to show for it.  Net worth is what you are actually worth (monitarily, obviously) at that moment in time.

I'm of the opinion that one ought to count any asset they have which has an offsetting liability.  I.e. I don't count my car, but I have no loan against it. If I owed 20k on it, and it was worth 15, I'd only count that as -5, not -20.

Some people don't count their house in their calculations, because they claim "you need a place to live," so they end up with a -250k net worth after taking out the mortgage (on a house worth 300k). What?  If you sold your net worth would go up from -250 to +50?  Sell now!  If you're going to count it against you, I'd count it for you as well.

IMO, YMMV.

You should also check out NetWorthIQ:
http://www.mrmoneymustache.com/forum/mustachianism-around-the-web/mustachian-web-tools-networthiq/

You'll be glad you started using it once you have a few months (or years) of data built up in it.

Some users a few months back said they had trouble signing up for it, and I don't know if that has been resolved or not, but it's worth a shot.
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tooqk4u22

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Re: How do I work out my net worth?
« Reply #4 on: January 31, 2013, 08:21:24 AM »
I don't count any personal assets or house, but like ARS implied it makes no sense to exclude your house but include the mortgage. 

If I did include my house I would conservatively estimate the value (probably 5% below market),  then deduct 7% for estimated transaction costs to sell, then deduct the mortgage - and that would be the house equity I would use for my net worth.

arebelspy

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Re: How do I work out my net worth?
« Reply #5 on: January 31, 2013, 08:43:02 AM »
If I did include my house I would conservatively estimate the value (probably 5% below market),  then deduct 7% for estimated transaction costs to sell, then deduct the mortgage - and that would be the house equity I would use for my net worth.

I don't count that stuff because it hasn't happened yet.  My net worth is a snapshot of today.  If I sell tomorrow and incur those costs then, my net worth will drop.

But just like I don't account for deferred maintenance on my car (i.e. it will probably break down in the next 3 years, so I'll prorate that amount and subtract it from my net worth), I count costs as they happen.  Do you count the value of your 401k as less any taxes you'll have to pay on it?  Because, for example, 5k in a Roth is worth more than 5k in a Traditional IRA. 

IDK, counting potential future costs on some things and not others seems weird to me.  If you do it for all your stocks as well (take into account transaction costs and tax liabilities) and essentially say "if I liquidated everything today, this would be my net worth," that would make sense to me.  Otherwise it makes more sense to me to adjust net worth as the costs are incurred.

Again, IMO and YMMV.  Everyone has their own favorite way of doing things.  :)
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tooqk4u22

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Re: How do I work out my net worth?
« Reply #6 on: January 31, 2013, 09:15:09 AM »
If I did include my house I would conservatively estimate the value (probably 5% below market),  then deduct 7% for estimated transaction costs to sell, then deduct the mortgage - and that would be the house equity I would use for my net worth.

I don't count that stuff because it hasn't happened yet.  My net worth is a snapshot of today.  If I sell tomorrow and incur those costs then, my net worth will drop.

But just like I don't account for deferred maintenance on my car (i.e. it will probably break down in the next 3 years, so I'll prorate that amount and subtract it from my net worth), I count costs as they happen.  Do you count the value of your 401k as less any taxes you'll have to pay on it?  Because, for example, 5k in a Roth is worth more than 5k in a Traditional IRA. 

IDK, counting potential future costs on some things and not others seems weird to me.  If you do it for all your stocks as well (take into account transaction costs and tax liabilities) and essentially say "if I liquidated everything today, this would be my net worth," that would make sense to me.  Otherwise it makes more sense to me to adjust net worth as the costs are incurred.

Again, IMO and YMMV.  Everyone has their own favorite way of doing things.  :)

I get that, but for the transaction costs for a house sale I think it is applicable to the net worth - whether now or in the future they will be required (the percentage assumption might be different) and that is an amount you will never realize - doesn't matter if values go up or down the costs will be there.   Its not the same as deferred maintenance because you may or may not have to spend that - you may decide to walk or sell your car - although to be honest I have a couple of accounts for home repairs, cars, and vacations that I add to each month and don't include in my net worth.   

Your right about retirement accounts, but taxes can be managed and they can change - especially if FIRE - but if you had to liquidate everything then if your 401k balance is high it could get cut in half between taxes and penalties.  Each scenario is different I guess but if you have enough non-retirement assets then it won't be an problem and you shouldn't include high taxes - some yes, but not all.  But if someone had $100k in their 401k and no other assets and a $75k spending level then they should absolutely deduct a tax/penalty figure because if they lose that job they will liquidate the 401k to survive and that $100k will easily be $75k or less.

But as you said to each their own...the basic calculation is simple but there are numerous ways to customize it.

arebelspy

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Re: How do I work out my net worth?
« Reply #7 on: January 31, 2013, 09:22:01 AM »
I get that, but for the transaction costs for a house sale I think it is applicable to the net worth - whether now or in the future they will be required (the percentage assumption might be different) and that is an amount you will never realize - doesn't matter if values go up or down the costs will be there.   Its not the same as deferred maintenance because you may or may not have to spend that - you may decide to walk or sell your car - although to be honest I have a couple of accounts for home repairs, cars, and vacations that I add to each month and don't include in my net worth.

Maybe, but you might never sell the house, so you may not have those transactions costs.  And, like taxes, costs can be mitigated.  You could FSBO, avoiding a commission.  You could negotiate buyer paying all closing costs.  You could owner carry.

It just seems to me that you should either count everything as it is today, without trying to incorporate future expenses, known or unknown, or you should count future expenses on everything as best as you can (such as the taxes on stocks example, estimating based on your projected income tax rate when you will be liquidating them, i.e. during FIRE).

If you have accounts that you don't count in Net Worth (and house, and whatever else), I'd argue you aren't doing a net worth calculation.  You are calculating liquid worth, or portfolio worth, or something like that (would have to know more about what you do, and don't, count in order to more precisely name it).

EDIT: I have no problem with you doing it however you want, I just like discussing this stuff.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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martynthewolf

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Re: How do I work out my net worth?
« Reply #8 on: January 31, 2013, 10:59:26 AM »
No, salary is irrelevant.   You could be investing all that in hookers and blow, and have nothing but good times to show for it.  Net worth is what you are actually worth (monitarily, obviously) at that moment in time.

I'm of the opinion that one ought to count any asset they have which has an offsetting liability.  I.e. I don't count my car, but I have no loan against it. If I owed 20k on it, and it was worth 15, I'd only count that as -5, not -20.

Some people don't count their house in their calculations, because they claim "you need a place to live," so they end up with a -250k net worth after taking out the mortgage (on a house worth 300k). What?  If you sold your net worth would go up from -250 to +50?  Sell now!  If you're going to count it against you, I'd count it for you as well.

IMO, YMMV.

You should also check out NetWorthIQ:
http://www.mrmoneymustache.com/forum/mustachianism-around-the-web/mustachian-web-tools-networthiq/

You'll be glad you started using it once you have a few months (or years) of data built up in it.

Some users a few months back said they had trouble signing up for it, and I don't know if that has been resolved or not, but it's worth a shot.

Cheers for pointing me at that. After filling it all in my net worth is currently -1224. Bad times.   

arebelspy

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Re: How do I work out my net worth?
« Reply #9 on: January 31, 2013, 12:04:56 PM »
That's not too bad.  You're young, you can aggressively target the debt to get it paid off and start accumulating faster than you'd think!
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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martynthewolf

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Re: How do I work out my net worth?
« Reply #10 on: January 31, 2013, 12:39:39 PM »
That's not too bad.  You're young, you can aggressively target the debt to get it paid off and start accumulating faster than you'd think!

Yeah I'm not too worried about it. I've already increased payments to some of the bigger debts. Im excited to get them decreased and have that money go towards savings.

I already save 150 a month which is about 10% of my current salary each month. I pay out now, about 200 towards paying off debts so once I can get my hands on that and divert it towards savings it'll start accumulating nicely.

tooqk4u22

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Re: How do I work out my net worth?
« Reply #11 on: January 31, 2013, 12:43:39 PM »
Maybe, but you might never sell the house, so you may not have those transactions costs.  And, like taxes, costs can be mitigated.  You could FSBO, avoiding a commission.  You could negotiate buyer paying all closing costs.  You could owner carry.

If you never sell it then it really won't be a monetary asset except for your heirs. Also, there will always be some cost - either direct or indirect.  If the buyer pays the transaction costs then your sale price will simply be adjusted downward.  FSBO may save you 3%, the reality is that selling agents won't show it if you aren't willing to pay their share.  And depending on where you live there may be transfer taxes and other costs. As I said the percentage might be different, but I like to use 7%. 

Either way the point is moot for me because as I said I don't include my house in my net worth.

If you have accounts that you don't count in Net Worth (and house, and whatever else), I'd argue you aren't doing a net worth calculation.  You are calculating liquid worth, or portfolio worth, or something like that (would have to know more about what you do, and don't, count in order to more precisely name it).

Yeah, what your thinking is how I look at it - not sure what to call it either but at the end of the day I only care about investable assets - stocks, bonds, rentals - anything that can produce a return or loss.

In some regard (tying back to my market fear thread) my house is my expense flexibility for a downside scenario because I certainly can sell and move to small less expensive house in my area or somewhere else or I can use the HELOC to bridge it - but again I ignore it for FIRE/Net Worth and don't expect it to come into play.

EDIT: I have no problem with you doing it however you want, I just like discussing this stuff.  :)

Didn't think you did and me too -