Are you making a mistake

[dragoncar]

No.
A house has worth and value. As long as you include any loans and liens against it then it absolutely should be in your net worth.
If you decided to sell everything and travel around the world then it has value. Its foolish not to include it in your overall net worth.

However I don’t include it in my liquid net worth (separate calculation) which is the one I’ll be using when calculating my retirement funds. Unless I rent the house out  then it is a non revenue producing asset and not one I can use as a source of funding for retirement.

[Miss Prim]

I don't count my paid off house in my net worth.  But, I do think about when the time will come to downsize, I will probably clear $100K to $150k extra net worth.  But I just keep that in mind and
not include it. 

But, right now our house actually makes us about $900/month with renting our walk out basement and barn space for storage.  I would lose that if I downsized. 

So, by downsizing, I actually would lose money if you figure a 4% withdrawal rate on $100- 150k.  But,
my husband and I will not be able to keep our house and 4 acres up eventually.  (We are 61 and 65).

[Roots&Wings]

I think that the textbook definition of "net worth" would definitely include home equity.

net worth = assets - liabilities

When thinking about FIRE, we're really more worried about how the income generated by our assets compares to our expenses.  So the value of your home is only relevant if you're planning to sell it and add the proceeds to your 'stache.  The mortgage payment, property taxes, and insurance are just expenses to include in the budget.  Similar to rent for those who aren't homeowners.

This. I don't include a house (or possessions, or car) in my NW.  The textbook definition of Net Worth has no personal relevance to me, and I equate the term with FIRE assets. 

[BlueMR2]

I agree: I do not consider home equity as part of "net worth."

Same here.  It's in the same class as all my toys/cars/etc.  Money owed on it would be debt, but it's not net worth to me as it's not actively generating income.  Actually it's worse, it's a liability, sucking down more money (yeah, I just sent off my 6 month property tax check today).

would you be willing to sell for 1$ since it is more than what it worth? in this case, do you think the buyer would be fooled because of all the expenses of that liability?

Nope, you've completely missed the point.  I have to get full value out of it right now to just break-even.  Anything less is a loss.  Keeping it is also a loss, just a much slower one.

A person with a 2 million dollar home and only $2,000 in the bank is not a millionaire, they're a thousandaire with a big anchor around their neck.

[Roland of Gilead]

Nope, you've completely missed the point.  I have to get full value out of it right now to just break-even.  Anything less is a loss.  Keeping it is also a loss, just a much slower one.

A person with a 2 million dollar home and only $2,000 in the bank is not a millionaire, they're a thousandaire with a big anchor around their neck.

A person with a paid off 2 million dollar home and $2,000 in the bank can likely get a home equity loan for up to $1,000,000.  If they get that money deposited in their checking account in cash, then they have instantly increased their net worth from $2000 to $1,002,000 overnight.  Not a bad return!

[sheepstache]

I think that the textbook definition of "net worth" would definitely include home equity.

net worth = assets - liabilities

When thinking about FIRE, we're really more worried about how the income generated by our assets compares to our expenses.  So the value of your home is only relevant if you're planning to sell it and add the proceeds to your 'stache.  The mortgage payment, property taxes, and insurance are just expenses to include in the budget.  Similar to rent for those who aren't homeowners.

This. I don't include a house (or possessions, or car) in my NW.  The textbook definition of Net Worth has no personal relevance to me, and I equate the term with FIRE assets.

Perhaps we should agree our net worth is the textbook definition but the thing we calculate our 4% on shall henceforth be called our stash.

[CheapskateWife]

So the answer is.....it depends.

[Le Barbu]

I agree: I do not consider home equity as part of "net worth."

Same here.  It's in the same class as all my toys/cars/etc.  Money owed on it would be debt, but it's not net worth to me as it's not actively generating income.  Actually it's worse, it's a liability, sucking down more money (yeah, I just sent off my 6 month property tax check today).

would you be willing to sell for 1$ since it is more than what it worth? in this case, do you think the buyer would be fooled because of all the expenses of that liability?

Nope, you've completely missed the point. I have to get full value out of it right now to just break-even.  Anything less is a loss.  Keeping it is also a loss, just a much slower one.

A person with a 2 million dollar home and only $2,000 in the bank is not a millionaire, they're a thousandaire with a big anchor around their neck.

now I miss that one, how come would you "break even" selling your actual house??

ex. mine worth 350k$, I owe 90k$. If I sell, I cash 250k$ (after fees) where is the break even? do you mean your mortgage is about the same as your house's market value?

if one own a 2M$ house paid in full and only have 2,000$ otherwise, he should just sell, buy a smaller one and invest the difference. statu quo would be...dumb?!

[stephenandrew]

Hi...first post here.  Have enjoyed lurking for several months now.   Seems to me that including or excluding your home's equity in net worth is just a matter of how conservative a picture you want to paint about your financial position.  By excluding your home equity entirely, one is being most conservative....e.g. until I sell my home, I cannot be 100% certain about its value; valuing your equity based on what you see in Zillow (for example) may be the least conservative, and perhaps could reflect an over estimate of one's net worth.  I think that it reasonable to include some portion of your equity in your net worth calculation...how much could reasonably vary from person to person


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[dragoncar]

Hi...first post here.  Have enjoyed lurking for several months now.   Seems to me that including or excluding your home's equity in net worth is just a matter of how conservative a picture you want to paint about your financial position.  By excluding your home equity entirely, one is being most conservative....e.g. until I sell my home, I cannot be 100% certain about its value; valuing your equity based on what you see in Zillow (for example) may be the least conservative, and perhaps could reflect an over estimate of one's net worth.  I think that it reasonable to include some portion of your equity in your net worth calculation...how much could reasonably vary from person to person


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I do the same thing with my stock holdings.  I just exclude my equity in them because I'm very conservative.  After all, until I sell my stock holdings, I cannot be 100% certain about their value.

[Roland of Gilead]

Hi...first post here.  Have enjoyed lurking for several months now.   Seems to me that including or excluding your home's equity in net worth is just a matter of how conservative a picture you want to paint about your financial position.  By excluding your home equity entirely, one is being most conservative....e.g. until I sell my home, I cannot be 100% certain about its value; valuing your equity based on what you see in Zillow (for example) may be the least conservative, and perhaps could reflect an over estimate of one's net worth.  I think that it reasonable to include some portion of your equity in your net worth calculation...how much could reasonably vary from person to person


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I do the same thing with my stock holdings.  I just exclude my equity in them because I'm very conservative.  After all, until I sell my stock holdings, I cannot be 100% certain about their value.

+1

The only thing you should include in your net worth is actual cash.  Stocks, bonds, houses, cars, all require you to liquidate them in order to realize their true value.

[Le Barbu]

Hi...first post here.  Have enjoyed lurking for several months now.   Seems to me that including or excluding your home's equity in net worth is just a matter of how conservative a picture you want to paint about your financial position.  By excluding your home equity entirely, one is being most conservative....e.g. until I sell my home, I cannot be 100% certain about its value; valuing your equity based on what you see in Zillow (for example) may be the least conservative, and perhaps could reflect an over estimate of one's net worth.  I think that it reasonable to include some portion of your equity in your net worth calculation...how much could reasonably vary from person to person


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I do the same thing with my stock holdings.  I just exclude my equity in them because I'm very conservative.  After all, until I sell my stock holdings, I cannot be 100% certain about their value.

wow, does it mean you intend to FIRE with 0$ NW? and you say you are conservative, pff!

May I suggest to upgrade your conservative level to the point you should work until you die, good old fashioned way...

[stephenandrew]

Hi...first post here.  Have enjoyed lurking for several months now.   Seems to me that including or excluding your home's equity in net worth is just a matter of how conservative a picture you want to paint about your financial position.  By excluding your home equity entirely, one is being most conservative....e.g. until I sell my home, I cannot be 100% certain about its value; valuing your equity based on what you see in Zillow (for example) may be the least conservative, and perhaps could reflect an over estimate of one's net worth.  I think that it reasonable to include some portion of your equity in your net worth calculation...how much could reasonably vary from person to person


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I do the same thing with my stock holdings.  I just exclude my equity in them because I'm very conservative.  After all, until I sell my stock holdings, I cannot be 100% certain about their value.

So while I see your point, I think there is a definite difference between equites and real estate.  Equities are traded every business day, and prices can clearly be established, and shares bought/sold at the current market price.  (I am assuming that any individual transaction is not so large as to impact the price, which is likely true for most folks).  So there really is little uncertainty about their worth at any given moment.  Real estate is a different animal...it is less liquid, every property is somewhat unique, there are significant transaction costs associated with selling/buying property, etc.  it is more difficult to be certain about value for all these reasons, so I think it is reasonable to take a "haircut" when estimating equity....again, how big a haircut is a somewhat subjective opinion I suppose.  So, yes you are right....the cash value of your equities in 10 years when you sell will likely be different than the current market value, I don't think treating them as having no value makes a lot of sense.  Even the future value of cash is uncertain...e.g. With inflation who knows what a dollar int the future will be worth.


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[driftwood]

what happens if you wake up tomorrow and a large sink hole appears in your yard? What would your house be worth then?

The same could be said about almost every asset that isn't cash, and even the value of cash could change...

My IRA & Index Fund values change daily when the market is open... still count them though. 

[Le Barbu]

Maybe some Mustachians are over-reacting to un-Mustachians statement like this over home valuation:

"-My house was bought for 220k$ back in 2009 and now worth like 380k$, it's gonna worth over 500k$ in 2019 and I will then owe only 160k$, so if I sell, I cash 340k$ and I am almost a millionaire!"

but we all know that before 2019, wifey will ask for a kitchen upgrade (25k$+) and dude will  make a dream men's cave (40k+), they probably agree for a 1,000 sq.foot add and a nice landscaping (100k$+) and finaly re-finance to repay a once-in-a-lifetime Disney Cruise (15k$+). I keep myself to talk about the second home they may buy, the every-2-years-car-changes and the kiddys high-end education fees. Oh, I did forgot the mortgage rates rise and real estate tanked 20%...

the final NW will likely be in the zero to -50k$ zone and they will not realise the mess before its to late and blame lack of goodwill, goverments, big corporations and CEO, health care cost, taxes etc

[slugline]

A homes value is nothing more then a place to live

This is one of those often-repeated statements that probably should be revisited. Yes, a home is basically a place to live. Ideally, however, home-owning ought to be viewed as an financial opportunity for Mustachian insourcing. What is being insourced are the tasks of landlord and property manager that are being outsourced when one is renting. This opportunity to insource is why the cost of ownership ought to be less than the cost of renting a comparable home. (If, for some reason you're looking at a situation where it's the other way around, I would view it as a strong sign that the house is overpriced.)

[NoraLenderbee]

Hi...first post here.  Have enjoyed lurking for several months now.   Seems to me that including or excluding your home's equity in net worth is just a matter of how conservative a picture you want to paint about your financial position.  By excluding your home equity entirely, one is being most conservative....e.g. until I sell my home, I cannot be 100% certain about its value; valuing your equity based on what you see in Zillow (for example) may be the least conservative, and perhaps could reflect an over estimate of one's net worth.  I think that it reasonable to include some portion of your equity in your net worth calculation...how much could reasonably vary from person to person


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I do the same thing with my stock holdings.  I just exclude my equity in them because I'm very conservative.  After all, until I sell my stock holdings, I cannot be 100% certain about their value.

+1

The only thing you should include in your net worth is actual cash.  Stocks, bonds, houses, cars, all require you to liquidate them in order to realize their true value.

So basically your net worth is the amount in your checking account plus  the coins under the couch cushions? Whoopee, I'm worth $3147.52! I'll bet a lot of people here are worth even less!

[Roland of Gilead]

So basically your net worth is the amount in your checking account plus  the coins under the couch cushions? Whoopee, I'm worth $3147.52! I'll bet a lot of people here are worth even less!

No, your net worth includes the amount in your checking account plus the actual cash value of a sarcastic post.

[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.

[EngineerMum]

It seems obvious to me. To retire, I need enough income to pay my living expenses. If I own a house, my living expenses are around 20k pa, if I don't own a house I also need rent of around 24k (and save perhaps 2k pa on rates and maintenance). Therefore the value of my owned house is 25 x 22k, when it comes to comparing the required 'stache amount. So my "number" is $1.05M if I don't own a house, $500k if I do, and my house is an asset worth $550k. What it sells for is irrelevant if I don't intend to sell it.

[teen persuasion]

What I find more disagreeable is when people leave out taxes as a spending category when they account for where.their paycheck goes.

I budget with take home pay. What benefit would there be to budgeting using gross and having a taxes category?

It's a more complete accounting, plain and simple. and a good reminder of the impact that our life choices make on our finances. We laugh at the people that treat cable TV like a mandatory monthly bill, right? But taxes -- sometimes we can fall in the trap of thinking they're fixed. However, in the United States we can affect the amount of taxes we pay by moving to different city or state or making decisions like getting married, having children . . . or not. But it's easy to forget about this if you don't look outside take-home pay.

What's the point in participating in tax-advantaged accounts if you're not trying to affect the amount of tax paid?

Under that logic, wouldn't it make sense to break your spending down further by separating out sales tax from any goods or services purchased? After all, it's easy to forget how much sales tax we pay if you don't look outside the receipt total. Yet nobody does this (because it serves no practical purpose).

If you do this, you realise buying on Craiglist worth more than most think. I dont buy new car or new electronics or new furniture exactly because I ran the calculations.

Even buying a used car, you have to pay sales tax.  My state gets its cut at the DMV registration.  If you report the purchase price as below book value for the car, they compute the sales tax on book value instead!

[bluecollarmusician]

Home value just doesn't really fit into the retirement model; a place to stay (relatively free -Taxes), and $600k in invested assets that can produce an average return of 4%.

Wait a minute -- is "income generating" a requirement for something to be considered an asset around here? If so, then $100,000 doing nothing in a checking account isn't an asset either, right?

Thank you!  A house is an asset with a market value. It is not a liquid asset.  That is all.  I don't understand this discussion ("I count it as this, but not as this, etc.")

It is what it is regardless of the house rules you use to keep track of your own financial life.  Maybe people who have not bought/sold property or owned rentals tend not to think this way?  Don't know- just hypothesizing... Your house is an asset with a value- best to understand what it is, what it costs you to keep it, etc. 

[Le Barbu]

What I find more disagreeable is when people leave out taxes as a spending category when they account for where.their paycheck goes.

I budget with take home pay. What benefit would there be to budgeting using gross and having a taxes category?

It's a more complete accounting, plain and simple. and a good reminder of the impact that our life choices make on our finances. We laugh at the people that treat cable TV like a mandatory monthly bill, right? But taxes -- sometimes we can fall in the trap of thinking they're fixed. However, in the United States we can affect the amount of taxes we pay by moving to different city or state or making decisions like getting married, having children . . . or not. But it's easy to forget about this if you don't look outside take-home pay.

What's the point in participating in tax-advantaged accounts if you're not trying to affect the amount of tax paid?

Under that logic, wouldn't it make sense to break your spending down further by separating out sales tax from any goods or services purchased? After all, it's easy to forget how much sales tax we pay if you don't look outside the receipt total. Yet nobody does this (because it serves no practical purpose).

If you do this, you realise buying on Craiglist worth more than most think. I dont buy new car or new electronics or new furniture exactly because I ran the calculations.

Even buying a used car, you have to pay sales tax.  My state gets its cut at the DMV registration.  If you report the purchase price as below book value for the car, they compute the sales tax on book value instead!

Where I live, we can declare 1$ purchase price and pay taxes accordingly 0.09$ on cars older than 7 years

[Davids]

Net worth by definition is assets minus liabilities . The mortgage on your home is a liability but the value of your home is an asset. I do not view my primary residence as an investment (I bought my house in 2010 and as of today it is worth about the same as I paid for it) but I include it in my net worth calculation. It is not a liquid asset but it should still be in your net worth calculation.

Now what I do not do that others do is I do not include the value of my car in my net worth calculation. The same argument though could be made to include the value of my car in my calculation but I plan on driving it to the ground so at some point it will be basically worth scrap.

[dragoncar]

what happens if you wake up tomorrow and a large sink hole appears in your yard? What would your house be worth then?

The same could be said about almost every asset that isn't cash, and even the value of cash could change...

My IRA & Index Fund values change daily when the market is open... still count them though.

What happens if you wake up tomorrow and you're dead???

[PseudoStache]

While I do not really think of my home as an investment at the moment.  I definitely believe it should be considered part of your net worth. 

I will be downsizing once the kids are self sufficient... And hope to net about $300K (in today's dollars).

But a question to those that do not count their homes or home equity in their net worth calculations:

Are you saying that the minute you buy your home you believe that you now have a lower net worth?  Say you put down $100K on a new home....you are now $100K "poorer"?  That just seems silly.

[Eric]

what happens if you wake up tomorrow and a large sink hole appears in your yard? What would your house be worth then?

The same could be said about almost every asset that isn't cash, and even the value of cash could change...

My IRA & Index Fund values change daily when the market is open... still count them though.

What happens if you wake up tomorrow and you're dead???

So what you're really asking is, would you consider your house to be an asset if you were a zombie?

[steveo]

Each to his own however I don't include my house in my net worth when calculating my FIRE number. I just view  it as a place to live that decreases my living expenses.

In stating that selling my house is also a great back-up option if I run out of money or funds get low.

[DaKini]

what happens if you wake up tomorrow and a large sink hole appears in your yard? What would your house be worth then?

The same could be said about almost every asset that isn't cash, and even the value of cash could change...

My IRA & Index Fund values change daily when the market is open... still count them though.

What happens if you wake up tomorrow and you're dead???

So what you're really asking is, would you consider your house to be an asset if you were a zombie?

Of course, a very important one! You need a basement to store all the braaaaain somewhere, don't you?

Btw i treat my brains erm car as regular asset in my nw, however i apply monthly depreciation to roughly track market value. Its basically an investment with negative return. When i bought it i transferred money from cash to this asset (0 nw change) and did not increase liabilitys (cash was enough, did not needed debt).
This depends on your accounting method however.

[marty998]

what happens if you wake up tomorrow and a large sink hole appears in your yard? What would your house be worth then?

The same could be said about almost every asset that isn't cash, and even the value of cash could change...

My IRA & Index Fund values change daily when the market is open... still count them though.

What happens if you wake up tomorrow and you're dead???

So what you're really asking is, would you consider your house to be an asset if you were a zombie?

Of course, a very important one! You need a basement to store all the braaaaain somewhere, don't you?

It forms parts of the net assets of your estate. There are 3 certainties in life:

Taxes, death, and being taxed in death.

[HawkeyeJD]

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!). 

[HawkeyeJD]

This topic is confusing.  Words have meanings.  In this case Net Worth is a term of art with a defined meaning:  Net worth is the total assets minus total outside liabilities of an individual or a company. Net worth is used when talking about the value of a company or in personal finance for an individual's net economic position. Put another way, net worth is what is owned minus what is owed.


If you want to talk about something else, then use the right words to describe it.  To say your net worth includes this but not that is just making things up.  Your net worth is exactly what the definition of the word says it is and nothing else! 

I'll also note that some financial terms have a wide range of meanings. For example, the OP could have used the word "economic wealth" instead of "net worth" and we would have avoided a lot of the clutter in this thread.  Specifically, in economics, wealth is often defined as the total of all assets of an economic unit that generate current income or have the potential to generate future income. It includes natural resources and human capital but generally excludes money and securities because they represent only claims to wealth.  So in this thread a few have advocated exactly this type of accounting but insist on calling it net worth when the concepts are quite different. 

Pedantics aside, the only measure that matters is the measure that determines if you can/will/should take a specific course of action.  It might be free cash flow, projected net income, net worth, economic wealth, or something else entirely.  Therefore, I think asking whether to include or exclude something in a net worth, or any other type of calulation, is only relevant in the context of why you are asking.   

[resy]

I dont actually own a house (yet) but when I do, thanks to MMM and others, I will not view it as a financial "investment" but rather as a place to live as you say.
I like SunshineGirl's view on knowing your NW with and without the home because although (assuming you have equity) can sell it and get a profit the market is so unpredictable it would be very hard and risky to bank on selling your house for x amount in y year to fit to a plan.
Maybe view the profit/value as a bonus?

[Sid Hoffman]

Absolutely include assets. A former coworker sold her house, at least $400k, and moved to Mexico to live in a fully furnished house for $100k. With the price difference she retired many years early.

Yeah, or here's another perspective: I know a retired couple with a roughly $300,000 home that's soon to be paid off.  Their general plan is that if one of them passes away, the survivor may keep the home or may downsize.  If they go from that $300k to a $200k home then right there they've unlocked $100k.  Alternately, they've looked at it from the standpoint that if the survivor stays in the $300k home until they (may) need to go to a nursing home, they can sell the home and $300k would easily last well over 5 years at a nursing home at $4500/month.  Reality is that 80% of people who go into assisted living are out within 1 year either due to recovering or dying.

Bottom line: I agree that everybody has to live somewhere, but it's also important to know the value of what you do own, as it means a variety of options as seen in the examples above.

[babysnowbyrd]

What I find more disagreeable is when people leave out taxes as a spending category when they account for where their paycheck goes.

Lol. I guess I just feel that if I were to include taxes it would complicate things a lot. IMHO, doing it that way is more "advanced" mustachian. When I get to the point where my debts are paid and I have some investments, then I'll definitely drill down on my legal tax-reduction strategies.

Unless there's something I don't know about reducing my single-income taxes? If there is, I'm all for it!

[NinetyFour]

Perhaps we should agree our net worth is the textbook definition but the thing we calculate our 4% on shall henceforth be called our stash.

Yes!!!  Thank you!

[Daisy]

It seems obvious to me. To retire, I need enough income to pay my living expenses. If I own a house, my living expenses are around 20k pa, if I don't own a house I also need rent of around 24k (and save perhaps 2k pa on rates and maintenance). Therefore the value of my owned house is 25 x 22k, when it comes to comparing the required 'stache amount. So my "number" is $1.05M if I don't own a house, $500k if I do, and my house is an asset worth $550k. What it sells for is irrelevant if I don't intend to sell it.

I agree. I have two net worth numbers. One is my true net worth, which includes the value of my home. The other excludes the home.

Net worth without home is what I use to calculate my 4% SWR for FIRE purposes. Of course, my living costs are somewhat reduced because I am mortgage free, so the 4% SWR needed is lower than if I didn't own my home.

I believe my home is an investment, but more like a bond. It's return is lower living costs and potential appreciation, In my case, I live in a gentrifying area so the appreciation may not be negligible.

One day I may decide to go all J Collins and sell the house and rent instead. At that point, the money invested in the home can go into the stock market and generate returns for me. My living expenses will increase, but so will the investable funds. As long as I can still do a safe 4% SWR it's all a wash.

[SugarMountain]

As others have pointed it out, including home equity in net worth is correct by the accepted definition of net worth.  (From wikipedia, "For individuals net worth or wealth, refers to an individual's net economic position; similarly, it uses the value of all assets (long term assets) minus the value of all liabilities.") 

Whether you use it in calculating your SWR or not is another matter.  One thing I haven't seen anyone mention is a reverse mortgage.  The way I look at my home equity is it is a backstop in case the market does not perform well enough over the next 50 years for a 4% SWR to be safe.  Or maybe my spending exceeds 4% (or the 4.5% the model really studied). For example, my house is currently worth maybe $500k.  Assuming it just keeps pace with inflation, in 50 years it will have doubled a couple of times and be worth $2 million.  That's enough to provide a pretty good cushion for my and my dw's dotage if we end up needing long term care and/or we've run everything else down to $0.00.  I'll just reverse mortgage it at that point.

I also look at social security as backstop and don't include it in my calculations.  But, if in 23 years we start collecting a couple grand a month, it makes a huge difference to the whole model.  I don't however include the net present value of SS in our net worth.  I suppose you could, even more so with an actual pension that may have cash out value.

[JCfire]

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?

If you have equity in your home at a low interest rate and wanted to pull it out and invest it hoping to make money on the difference that is an option, but it still will be reported in financial statement as debt on home and gain on investment. A homes value is nothing more then a place to live; if you downsize, then you move and get to add to your investments, but until you do that you can't report it.

home -27.8k@ 0% (family owned)
SL -15.6k @6.63%
Sl -8.2k @5.18%

investments 60k (made 10.19% this year)
NW 7.3k

9 months ago NW was -14.8k

Very simple, owning your home is an asset that offsets the liability of your future need to house yourself.

So if you count your future housing costs as an anticipated expense, count your home equity as net worth.  If you are not counting your future housing costs as an anticipated expense, do not count your home equity as net worth.

[CestMoi]

I don't include the value of my home in my net worth, either.

[4alpacas]

I count mine in my net worth, but not in my "stache" of income generating investments.  Tossing it in with a 4% SWR calculation would be a problem, but keeping it on your balance sheet is not.

This is exactly what I do.  Ignoring the value in my home would be ridiculous, but I also don't consider it an income generating asset.  Therefore, I include the home equity in my net wroth, but I don't include the equity in my FIRE number. 

I also don't include mortgage principle payments as savings.  I include total payment as spending (principle, taxes, interest, and insurance).

[Roland of Gilead]

I don't include catnip in my fruit bowl and would not expect someone to figure their SWR on peanut butter cookies.  If I have to move out of my Tupperware when I get older, I will just add carpet to my portfolio.

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.

[Guffeyjon]

For people who include the house value in their NW but define their stash without the value, how do you calculate the stash?

I have 50k in accounts but 45k in debt (27k in house); how would you calculate the stash?

[4alpacas]

For people who include the house value in their NW but define their stash without the value, how do you calculate the stash?

I have 50k in accounts but 45k in debt (27k in house); how would you calculate the stash?

I ignore my mortgage debt in my stash calculations, but I include my mortgage payments in my spending amount. 

Stash=(401k+Roth IRA+IRA+brokerage account+checking account+savings accounts) - debt
where
debt= student loan debt + car loans + credit card debt + personal loans (anything except for mortgage)

For 4% SWR,
stash = 25 * spending
where
spending = total spending including total mortgage payment and taxes

[dd564]

The net worth calculation is not difficult.
This can be looked up almost anywhere online.

I'm assuming those who aren't calculating the value of their home don't have much home value.

What seems to be strongly forgotten on this board is that having a house provides value other than just financial.

In some cases, these are values you gain that don't have direct financial implications.

1.  Ability to keep a spouse.
2.  Ability to reduce daycare expenses because you can work from home more frequently because you have added space for kids to play outside or watch directv instead of taking them to daycare.  If you rent a small space, a yelling kid can negate any confernce calls.  Larger home, you can work from home and they can play in the basement during calls.
3.  Ability to garden.
4.  Ability to store goods / commodities
5.  Ability to practice additional income producing activities.  (Small gas engine repair in your garage or other garage business)
6.  Ability to host gatherings
7.  Ability to choose your own appliances and decor
8.  Free rent without fear of rent raises
There are others.

Good for those who enjoy the minimalistic lifestyle, but to ignore such an asset when the networth calculation requires it is simply wrong.
Look it up.

[dd564]

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!

[dragoncar]

I don't include catnip in my fruit bowl and would not expect someone to figure their SWR on peanut butter cookies.  If I have to move out of my Tupperware when I get older, I will just add carpet to my portfolio.

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.

Dude, carpet is super risky right now.  Stick with pork bellies.

[lackofstache]

I don't include catnip in my fruit bowl and would not expect someone to figure their SWR on peanut butter cookies.  If I have to move out of my Tupperware when I get older, I will just add carpet to my portfolio.

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.

Dude, carpet is super risky right now.  Stick with pork bellies.

I wish I hadn't sold my pork bellies, I could be making my own bacon in FIRE if I hadn't.

[Roland of Gilead]

I just want to say one word to you.  Just one word.  Plastics.

[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.