Author Topic: What do you count in your Net Worth?  (Read 20926 times)

Honest Abe

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What do you count in your Net Worth?
« on: November 28, 2012, 08:11:16 PM »
Just curious what assets some of you factor into net worth? I use cash, investments, cash, and cars


strider3700

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Re: What do you count in your Net Worth?
« Reply #1 on: November 28, 2012, 08:13:49 PM »
I also include house since I have to take the remainder on the mortgage into account. 

kkbmustang

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Re: What do you count in your Net Worth?
« Reply #2 on: November 28, 2012, 08:29:39 PM »
Assets: Cash, Cars, House, Retirement Plan Balances
Liabilities: Mortgage, Student Loans (No car loans or CCs)

arebelspy

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Re: What do you count in your Net Worth?
« Reply #3 on: November 28, 2012, 10:37:35 PM »
I count houses, because I count the mortgages as liabilities.

I don't count cars (though I would if I had an offsetting liability, such as a car loan), or any personal property.

Basically the items on NetWorthIQ minus cars and personal personal property, and I don't have some of them.

(And I guess I should count the NPV of my potential future pension as an annuity, but I don't do that either).

NWIQ lists the following as Assets:
Cash
Stocks
Bonds
Annuities
Retirement
Home
Other Real Estate
Cars
Personal Property
Other

And lists these as Liabilities:
Home Mortgage(s)
Other Mortgage(s)
Student Loans
Credit Card
Car Loans
Other
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gooki

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Re: What do you count in your Net Worth?
« Reply #4 on: November 29, 2012, 01:03:07 AM »
I'm the same as arebelspy.

Don't count cars or personal possessions.

Ozstache

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Re: What do you count in your Net Worth?
« Reply #5 on: November 29, 2012, 03:30:10 AM »
Cash, Superannuation (tax advantaged retirement savings), Lump sum equivalent value of pending military pension, House


Kamikaze Emu

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Re: What do you count in your Net Worth?
« Reply #6 on: November 29, 2012, 07:52:11 AM »
I imagine I am the same as a lot of people.

Assets:
Cash
RRSP
TFSA
Other investments
Real estate

Liabilities:
Mortgage(s)
Other loans

I ignore cars as I feel the value is very subjective, also you never get what you think they are worth.  Given the mustachian views surrounding automobiles these are very limited assets so exclusion does not have a large impact on net worth.

catalana

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Re: What do you count in your Net Worth?
« Reply #7 on: November 29, 2012, 08:47:57 AM »
I include cash in savings accounts, bonds, investments, and my car.

I exclude current account and credit card as both go to zero each month.

I exclude pension savings because they are investments I cannot access for another 30+ years.  I would also struggle to put a net present value on the ones held by previous employers (although my self-invest one I can see at the click of a button).

I might rethink including pensions, because I need to take a more holistic approach to working life and investing for retirement.

icefr

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Re: What do you count in your Net Worth?
« Reply #8 on: November 29, 2012, 10:07:46 AM »
I split it up like this:

Assets
* Cash (Checking accounts less floating credit card balances)
* Savings accounts
* Investments (RRSPs, 401(k), Roth IRA, Taxable)
* Condo value

Liabilities
* Mortgage balance on condo

I don't count my car in my net worth, so my net worth took a bit of a dive in the month/year that I bought it. I could have depreciated its value each month, but I preferred the idea of taking the hit one month and being done with it.

I'll probably stop counting my condo value in my net worth when the mortgage is paid off. But really the two numbers I watch are (1) mortgage balance going down and (2) investments going up and the 3% and 4% monthly amounts of that to show when I'll be FI.

tooqk4u22

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Re: What do you count in your Net Worth?
« Reply #9 on: November 29, 2012, 10:13:11 AM »
I include cash and investments, I don't include the house because it is not liquid and I need a place to live unless I downsize and realize the cash, which is not likely given I have 3 littles ones.  So to me the equity in the house cancels out the implied liability of the housing costs (taxes, insurance, repairs & maintenance, utilities, etc).


chucklesmcgee

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Re: What do you count in your Net Worth?
« Reply #10 on: November 29, 2012, 11:19:23 AM »
I don't include the house because it is not liquid and I need a place to live unless I downsize and realize the cash, which is not likely given I have 3 littles ones.  So to me the equity in the house cancels out the implied liability of the housing costs (taxes, insurance, repairs & maintenance, utilities, etc).

I agree. Houses seem to be more of a possible expense reduction asset than a real investment these days.

Hamster

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Re: What do you count in your Net Worth?
« Reply #11 on: November 29, 2012, 11:25:04 AM »
I'd say it also depends on why you are calculating it.

If you just want to know your assets minus liabilities, I'd agree with the above. I'd include the cars, but be aware that their value will decrease.

If you are calculating net worth for the purpose of early retirement, then you're really concerned with the portion of your net worth you can be using to fund your costs of living at your planned withdrawal rate. In that case, I wouldn't count your home equity (unless you plan to sell), most retirement plans, cars, or college savings plans for kids as those aren't funds you can spend without penalty. For US people, I'd count Roth contributions if you think you would withdraw them to live on (but don't count Roth earnings since you pay a penalty for withdrawal before qualifying age). If you are near traditional retirement age, then count all retirement funds.

I'm curious what others think about this, as I might be looking at it wrong.

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Re: What do you count in your Net Worth?
« Reply #12 on: November 29, 2012, 12:27:22 PM »
@Hamster, you are correct.  One should identify what the purpose of the net worth statement is for in order to do a proper calculation.

I essentially track five "net worths":

1.  Overall net worth - all assets minus all liabilities.  This is for general tracking to make sure the numbers are going in the right direction and for milestone celebrations (Net worth > $0.XM, for example).  It also enables me to derive the remaining values below.
2.  Estate net worth - basically all liquid assets minus all liabilities, plus cash value of a term life policy provided by my work minus cost of a funeral for me.  This is to ensure that if I die today my kids will have enough resources to make it to adulthood.
3.  College net worth - value of the kids' college accounts.  This is to make sure there's enough money for them to get through college.
4.  FIRE net worth - basically the same as (1) except excludes college funds and home equity.  This is to see when I will be FI.
5.  Emergency fund net worth - liquid assets only.  This is to make sure I have an emergency fund of the right size in case I lose my job.

Each of these has a different purpose and ends up being a different dollar amount.

Most people have their "purpose" in mind when they're building a net worth statement, and so their choices make sense to them.  I have seen senseless debates erupt though when different people argue over whether X or Y should be included/excluded, when in reality the people have different purposes and the different treatment of X or Y makes sense in that light.

2Cor521

arebelspy

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Re: What do you count in your Net Worth?
« Reply #13 on: November 29, 2012, 12:29:21 PM »
Agreed.  Some people seem to be confusing cash flow needed (i.e. expenses) which is based on what your portfolio will kick off, versus net worth.  Two different numbers, often conflated.
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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KMMK

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Re: What do you count in your Net Worth?
« Reply #14 on: November 29, 2012, 12:31:13 PM »
I'd say it also depends on why you are calculating it.

If you just want to know your assets minus liabilities, I'd agree with the above. I'd include the cars, but be aware that their value will decrease.

If you are calculating net worth for the purpose of early retirement, then you're really concerned with the portion of your net worth you can be using to fund your costs of living at your planned withdrawal rate. In that case, I wouldn't count your home equity (unless you plan to sell), most retirement plans, cars, or college savings plans for kids as those aren't funds you can spend without penalty. For US people, I'd count Roth contributions if you think you would withdraw them to live on (but don't count Roth earnings since you pay a penalty for withdrawal before qualifying age). If you are near traditional retirement age, then count all retirement funds.

I'm curious what others think about this, as I might be looking at it wrong.

Well, if you're like me and love calculating things you'll do a few different calculations. For net worth I include everything except personal (household) items, since their value is so low. I do include the car, but with a guesstimated depreciation, and a house when I own one.  I also have a current calculated amount for money assets only and also calculate what my investments are generating each month, to compare it to my monthly spending.

Angelfishtitan

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Re: What do you count in your Net Worth?
« Reply #15 on: November 29, 2012, 12:41:17 PM »
I keep track of both my total net worth (which does not include cars or personal property, but does include house/mortgage) and liquid assets (basically same as above minus house/mortgage).

Thus I can more easily tell how good I am with my money overall (in case I feel like putting extra toward my mortgage) or how close I am to FI.

I would say that vehicle and personal possessions should be a small part of net worth and wouldn't effect it that much anyway, still count any loans I have on those things though against it.
« Last Edit: November 29, 2012, 12:43:06 PM by Angelfishtitan »

Mrs MM

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Re: What do you count in your Net Worth?
« Reply #16 on: November 29, 2012, 12:53:40 PM »
I'm the same as arebelspy.

Don't count cars or personal possessions.

Ditto here. 

frugalcalan

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Re: What do you count in your Net Worth?
« Reply #17 on: November 29, 2012, 04:49:07 PM »
I count cash and investments.  My car probably should count, but since it was a gift from my parents, it still doesn't feel like it's "mine."  Plus I plan to drive it till it dies, so it's not like it's going to be making me any money anyway.

c

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Re: What do you count in your Net Worth?
« Reply #18 on: November 29, 2012, 06:06:45 PM »
I count cash and investments too (brokerage, 401k) too.

I only count my apartment because of the balance on the mortgage. I track the equity based on the price I bought it at (I bought it at the bottom of the market).

I don't count personal possessions though really most of them are street finds and probably not worth much anyway.


NWstubble

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Re: What do you count in your Net Worth?
« Reply #19 on: November 30, 2012, 12:25:06 AM »

I essentially track five "net worths":

Each of these has a different purpose and ends up being a different dollar amount.


Ditto. I don't have five, but take a similar approach based on what I am trying to track.

Catbert

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Re: What do you count in your Net Worth?
« Reply #20 on: November 30, 2012, 08:49:48 AM »
I track what I call my "investment net worth" which includes stocks, bonds, IRAs. equity in rental property etc.  It excludes cars, personal property and my primary residence (you gotta live somewhere).

WageSlave

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Re: What do you count in your Net Worth?
« Reply #21 on: November 30, 2012, 12:34:26 PM »
If you are counting mortgaged real estate in your net worth, what dollar amount do you assign the liability?

For example, say I own absolutely nothing except a $100k house that I purchased with a zero-down mortgage (with a non-zero interest rate).  For simplicity, assume the house's fair market value is exactly what I paid for it ($100k).

Would you say my net worth is zero (value of house = amount owed) or net worth is negative, because the liability includes interest on the amount owed?

In my mind, I tend towards the former: I look at it as, if I received a windfall that exactly covered the loan amount, I could pay it off immediately and not owe the interest (assuming no penalty for early payoff).

secondcor521

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Re: What do you count in your Net Worth?
« Reply #22 on: November 30, 2012, 01:10:47 PM »
@WageSlave,

Personally I just use the outstanding loan balance.

If I wanted to comply with all the fancy accounting rules, I'd account for the accrued interest since my last payment.  But then I would also be correct to account for my accrued salary that I've earned since my last paycheck.  And my accrued electric bill.  And accrued tax liabilities.

It's a lot of work to accrue, and the accruals generally cancel each other out, and the gyrations of the stock market and my day-to-day spending affect my net worth and other calculations more than the accruals do.  Right now, for example, I accrue net mortgage interest of about $5 per day.  So I just don't bother.

2Cor521

The_Dude

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Re: What do you count in your Net Worth?
« Reply #23 on: November 30, 2012, 01:40:36 PM »
I use quicken so any bank account gets entered there.  What is currently missing is a tiny defined contribution plan from a former employer (maybe $5k tops) and a defined contribution plan at the current employer that has only a couple of $k vested.

I do include vehicle purchases in a way.  When I buy a big ticket item like a car I set it up in quicken as an asset and then depreciate it to $0 over 4 years so it should outpace actual depreciation by a safe margin. 

tooqk4u22

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Re: What do you count in your Net Worth?
« Reply #24 on: November 30, 2012, 01:50:59 PM »
If you are counting mortgaged real estate in your net worth, what dollar amount do you assign the liability?

For example, say I own absolutely nothing except a $100k house that I purchased with a zero-down mortgage (with a non-zero interest rate).  For simplicity, assume the house's fair market value is exactly what I paid for it ($100k).

Would you say my net worth is zero (value of house = amount owed) or net worth is negative, because the liability includes interest on the amount owed?

In my mind, I tend towards the former: I look at it as, if I received a windfall that exactly covered the loan amount, I could pay it off immediately and not owe the interest (assuming no penalty for early payoff).

Ignore the interest....so it would be zero.  Setting that aside if I were to include my house, which as I said above I don't, then I would deduct potential transaction costs from the value (assuming of course people that include their houses are using a realistic value and not the 2006 value).  So in your example where you owe $100k and house is worth $100k - I would deduct 7% and get to a net value of $93k so you would have negative equity of $7k, of course this assumes that paying what you owe and maintaining your credit are important to you, if not then no need to deduct because you can just hand over the keys.   

arebelspy

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Re: What do you count in your Net Worth?
« Reply #25 on: November 30, 2012, 11:04:41 PM »
I count the equity and liability.

I incurr costs as they happen. If I sell a house and lose 7% in transaction costs, my net worth takes a hit. No big deal.
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NWstubble

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Re: What do you count in your Net Worth?
« Reply #26 on: November 30, 2012, 11:57:10 PM »
I count the equity and liability.

I incurr costs as they happen. If I sell a house and lose 7% in transaction costs, my net worth takes a hit. No big deal.

Agreed, I wouldn't project the transaction costs, the same way you don't project the taxes on your investments included in your net worth.

smalllife

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Re: What do you count in your Net Worth?
« Reply #27 on: December 01, 2012, 09:59:15 AM »
I include both my home and car, because selling one or both is an option should I want to quit the rat race sooner than my investments allow.  I've toyed with selling the car in a couple of years anyway.  Both are significantly undervalued in my net worth calculations - which is about where they would sell in a "need money quick" scenario.  I can understand not wanting to include them though.  It's a personal decision and one that hinges on what you use that net worth figure for.

StetsTerhune

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Re: What do you count in your Net Worth?
« Reply #28 on: December 02, 2012, 12:45:18 PM »
I only count liquid assets in my net worth, mostly because I don't have anything of value -- no house, crappy car, etc.

I also have an adjustment factor for my 401K and my Roth IRA. I multiply these by the balances to put my retirement account assets on par with my non-retirement assets.  I estimate these savings based on projected tax rates and investment returns. My Roth adjustment factor is greater than 1 since I'll have to pay less tax on future gains.  The 401K factor is less than 1 -- tax advantages make it go up, but future tax liabilities on withdrawals (or more likely a roth conversion) make it go down.

arebelspy

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Re: What do you count in your Net Worth?
« Reply #29 on: December 02, 2012, 04:36:19 PM »
I only count liquid assets in my net worth, mostly because I don't have anything of value -- no house, crappy car, etc.

It's easy to avoid when you don't have to, but the question is - if you put 25k of that liquid monies into a down payment for a house, would your net worth go down by 25k, or would it be about the same (down slightly due to closing costs, but 25k less liquid and in equity, and NW mostly unchanged).  :)
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StetsTerhune

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Re: What do you count in your Net Worth?
« Reply #30 on: December 02, 2012, 07:36:11 PM »
I guess the real question is: what are we counting net worth for?

I count it to see how close I am to being able to live off of it. So if I have 400K in stocks, and have decided that I'm comfortable with taking 4% a year of that forever, then I have 16K a year that I can live off of. I compare that to how much I'm spending now, and say, hmm, I'm X% there! If I put half that money into a house, now I have 200K in stocks. So if I have and 200K in a house. Now I have 8K I can live off of, and a house. I compare that to how much I'm spending now minus the housing expenses saved and think, hmm, I'm X% there.

So if I put 25K into a house, I would decrease my net worth that much, but hopefully, that would decrease my spending some, and those are the 2 sides of the coin that I care about. That's what I'd be thinking about when deciding whether to put the down payment on the house anyway.

arebelspy

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Re: What do you count in your Net Worth?
« Reply #31 on: December 02, 2012, 08:33:24 PM »
Your answer:
So if I put 25K into a house, I would decrease my net worth that much

I find it really interesting that people differ so much on this.  Not sure why I find it so interesting, but I do.  I would decrease my portfolio amount, which means the amount kicked off for living expenses goes down (but as you point out, hopefully living expenses goes down as well), but keep net worth the same. 

Interesting that even basic terminology people can't agree on.  :)
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.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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