Are you making a mistake

[Roland of Gilead]

Words do have meaning.  It is confusing when people decide to redefine a word that already has a very accepted definition into their personal reality.

You're right about this, but companies are allowed to set a threshold for what gets capitalized and what is expensed...so why can't each of us make a similar judgment? You make it sound like every company in the world has exactly the same way to calculate their balance sheet...clearly that's not accurate, even though there is only one definition of "net worth".

Personally, I have decided that anything less than a house gets expensed, so I don't include my vehicles or any other "small" assets in my NW calculation.  I do include my house.

I guess we could try and get a new term going, like MNW for "modified net worth"  Then we can have the same fun time investors have when they try to figure out if company earnings are GAAP or non GAAP.

Or we could just understand that net worth is the value of all of your assets minus your liabilities.   I guess that is too hard...

edit:  I do understand when people do not want to include small items that would result in such a little increase in their net worth that it is a rounding error.   Even car values are negligible when your portfolio gets over $1 mil (excepting certain models).  When your portfolio is $500,000 and your paid off home is $300,000, not including it in your net worth (talking net worth, not investments, or stache or grandma's cookies) is silly and wrong.

[mak1277]

Words do have meaning.  It is confusing when people decide to redefine a word that already has a very accepted definition into their personal reality.

You're right about this, but companies are allowed to set a threshold for what gets capitalized and what is expensed...so why can't each of us make a similar judgment? You make it sound like every company in the world has exactly the same way to calculate their balance sheet...clearly that's not accurate, even though there is only one definition of "net worth".

Personally, I have decided that anything less than a house gets expensed, so I don't include my vehicles or any other "small" assets in my NW calculation.  I do include my house.

I guess we could try and get a new term going, like MNW for "modified net worth"  Then we can have the same fun time investors have when they try to figure out if company earnings are GAAP or non GAAP.

Or we could just understand that net worth is the value of all of your assets minus your liabilities.   I guess that is too hard...

edit:  I do understand when people do not want to include small items that would result in such a little increase in their net worth that it is a rounding error.   Even car values are negligible when your portfolio gets over $1 mil (excepting certain models).  When your portfolio is $500,000 and your paid off home is $300,000, not including it in your net worth (talking net worth, not investments, or stache or grandma's cookies) is silly and wrong.

My point is that if one company says anything under $5,000 is expensed but another says anything under $50,000 is expensed...well they're both GAAP...companies are allowed to have some flexibility in their definition of "assets". 

I don't disagree at all, however, with what you wrote in your 'edit'.

[Le Barbu]

Words do have meaning.  It is confusing when people decide to redefine a word that already has a very accepted definition into their personal reality.

You're right about this, but companies are allowed to set a threshold for what gets capitalized and what is expensed...so why can't each of us make a similar judgment? You make it sound like every company in the world has exactly the same way to calculate their balance sheet...clearly that's not accurate, even though there is only one definition of "net worth".

Personally, I have decided that anything less than a house gets expensed, so I don't include my vehicles or any other "small" assets in my NW calculation.  I do include my house.

I guess we could try and get a new term going, like MNW for "modified net worth"  Then we can have the same fun time investors have when they try to figure out if company earnings are GAAP or non GAAP.

Or we could just understand that net worth is the value of all of your assets minus your liabilities.   I guess that is too hard...

edit:  I do understand when people do not want to include small items that would result in such a little increase in their net worth that it is a rounding error.   Even car values are negligible when your portfolio gets over $1 mil (excepting certain models).  When your portfolio is $500,000 and your paid off home is $300,000, not including it in your net worth (talking net worth, not investments, or stache or grandma's cookies) is silly and wrong.

My point is that if one company says anything under $5,000 is expensed but another says anything under $50,000 is expensed...well they're both GAAP...companies are allowed to have some flexibility in their definition of "assets". 

I don't disagree at all, however, with what you wrote in your 'edit'.

Most here will agree with the plain NW definition. However, for Mustachians, house is probably the only "non-investable" asset. Our cars, when we own one, worth 5k$ or less and we don't own speedboats, jetpack etc. All other owned stuff is not included for the same reason of convenience (fridge, chairs, matres). Considering this, when one's portfolio (stash) worth 500k$, paid off house is worth300k$, why deliberatly exclude the house from NW? On the other hand, is portfolio worth 1M$ and your house is a shitty crap sitting between the edge of a landfill and a 16 lines highway and worth less than 35k$, I would definetly think twice before including it in my total NW.

[retired?]

Just like other financial metrics, you define it in a way that makes it a useful metric for you......and, therefore helps to make decisions.  Why would anyone get stuck on the definition?  Are people really discussing actual numbers with others, but saying "oh, but you included your house"?

I calculate it including all financial assets (including 529's, which I know will be used) and physical assets (homes and cars) since, if needed, I could sell them.  I include mortgages on the debt side and home value on the asset side (less the ordinary sales commission).  It reflects the total in cash that I could produce if needed. 

That said, I do break it into:

 - Financial vs physical
 - Financial liquid (cash, stocks, etc.) vs. financial illiquid (retirement and 529's)
 - Financial less 529s (for long term returns that can be used for living expenses)
 - Total less cars and 529s (since long term neither is worth anything ....... except perhaps that kid ROI ; )    )

why limit yourself on the information?  I know my total includes home equity, but that's not what I use to determine expected investment income.  Longer term, 50% or so of that home equity will be used for investments as we downsize.

Net advice - use what is helpful to you in making decisions.  You only need to agree on definition if you are comparing.....which isn't always a fruitful activity.
 

[iwasjustwondering]

I'm new to the forum, and enjoy it so far, but worry that too many people on here view there home value as a part of their net worth. In my opinion the equity in your home or the value of your home should not be taken into account when determining your net worth; what happens if you wake up tomorrow and a large sink hole appears in your yard? What would your house be worth then?

What would my Vanguard fund be worth if the stock market tanked, or if Vanguard tanked?  The fact that an asset is associated with risk doesn't make it less of an asset.

I absolutely count my home equity as part of my net worth.  If I pay off my house, I will be able to live rent-free.  If I sell and downsize my home, which I plan to do after my kids leave for college, that equity will become more liquid.  My home has increased in value by about $60,000 since I bought in 2010.  It's definitely an asset, especially when compared with renting.

I, too, wanted to sell and downsize after the kids left for college. But guess what? The little dears still need a place to call home on holidays and summertime. I was wondering if you considered this? Both of mine are driving up the utilities bill as we speak!

Tell them to help pay the utility bills, plus the extra food they are eating. Tell them that you are downsizing because they have, for the most part, left the nest and if they wish to spend summers at home they will have to do it at the new smaller digs - even if that means sleeping on the floor in the living room. And then they'll still have to help cover their share of the utility and food expenses. I have never understood why parents keep a big house for the rare occasions their kids come home for the holidays - or to entertain guest who come rarely. If downsizing is the right choice for you, do it and the kids will find a way to visit anyways. Of course I don't have kids so what do I know :-)!

Well, the OP here said summers and holidays.  That probably amounts to 12 to 14 weeks over the summer and 2 or 3 weeks between the semesters, and random weekends and holidays.  So lets call it 15 weeks plus random weekends and holidays, which amounts to about 30% of the total days in a calendar year.  So, I don't think it is unreasonable to keep the house a few more years for your kids to have a place while they get on their own feet.  The alternative is living in cramped quarters for 30% of the year, making your kids rent an apartment on their own (and then they might just stay in their college town rather than come home), or just not seeing your kids more than a few weeks each year when they decide they are going to stay at college 50 weeks of the year.  Some people, in fact, enjoy their kids coming home during the summers and inbetween semesters (and certainly some do not!).

I will most certainly enjoy having my kids home for summers!  I would never charge them for coming home.  I would probably pay them for coming home (don't tell them or I will look pathetic).  At the very least I will bake cookies. 

I don't think cramped quarters would really bother us that much.  When we go on vacation with extended family, it's pretty cramped.  I wasn't going to get a one-bedroom or anything.

[kathrynd]

My house produces lots of income.

At the age of 40 & 44, my husband and I withdrew all the equity we could out of this  home to finance down payments. We  started purchasing apt buildings, single family homes, mobile homes. In the span of 6 years, and a lot of hard work, we retired, and now live solely on rent...and travel 8 months of the year.

In time we rented out our family home (when the 4 children were young adults) and then we purchased a 5-unit apt house.
We took a unit, and the 4 kids each took a unit. Even though the mortgage is in our name, each 'child' is paying a portion of the expenses and upkeep,ad title will be transferred when it is paid off.
In this apt building, we share a single connection for phone/cable/internet.

This person gets it.

If you didn't look at that house as part of your networth or as investible money, you wouldn't have grown to what you have today.

Congratulations!

Thank You :)