Net Worth and Mustashianism

[deborah]

In another topic someone suggested new categories set up based upon net worth.

I got to thinking about this, and I find net worth is about the least defining factor I can think of about mustashianism. For instance I can think about the following two types of people on the forum:

• There are some young mustashians who have enormous education debts and a house with a large mortgage. However, they have always had frugal habits. These people are amazingly rapidly transforming that situation, and in a few years will have a quite incredible net worth. They will also be FIRE incredibly soon.
  
  
• There are old mustashians who have always lived up to or beyond their means. These people may not have a low net worth, but will not be able to FIRE for a long time because their spending patterns are ingrained, they have lived a long time without disciplined saving, and so everything they do to turn around will be more difficult. For these people, net worth might stay at the same level for a while, even though they are really tackling the job of transformation so that they can become FI.

Obviously everyone is different, and not many mustashians fit into either group. However, while both groups may have the same net worth, they probably have totally different needs and questions.

Where do you place net worth in relation to mustashianism? Are you like me, and more or less ignore it (apart from being amazed how low/high some people need it to be for FI)? Or do you think it is a necessary consideration? And what do you think is useful information - years from FI, savings rate...? Or do you ignore all these things, and learn as much from the people who mightn't save much, or have much net worth, but have interesting ideas about how to live, how to invest (and how not to) and frugality (for instance there is someone who is trying to live out of his car)?

[ChrisLansing]

I'm older and coming late to the party.    I'll never reach FI before normal retirement age.  When I do retire SS will be a big portion of my income - though not the only source.   We currently have about 60K in retirement accounts and a house worth maybe 50K  (Cheap housing here in the dying rust belt)   I more or less ignore NW because I think lessons can still be learned  despite differences in NW. 

I suppose where NW becomes relevant is with respect to the opportunities available.   Someone with a high net worth might consider investing in an apartment building, for example.    A multi-unit apt. bldg. will probably not be in the cards for me.     

[Pants]

As someone who is prone to get obsessive over things, I avoid looking too much into NW. Some of it is volatile (shares), some of it locked up (house), all of it is only an indicator of past habits, IMO.

My biggest challenge is actually what I affectionately call The Mentals. The psychological patterns, the habits, my way of thinking. This is what I focus on and this is where the changes need to happen. I figure that if I change the Mentals, the Net Worth will follow.

[randommadness]

Net worth is the game itself, when you have a chance for FI, in my opinion.

Think of it like playing h-o-r-s-e. I know I have to make my shots and get all the letters. Aka I know I have to reach $750k if I want a 4% SWR.

Maybe you have 50% of your money tied into Prosper or Lending Club, making you a risky 12-15% a year. Now you've hit your 750k, you know you can maybe scale that back or move that money into safer investments which will more just cover your SWR and account for inflation.

[Datastache]

I fall into neither category - I'm young and frugal, but my income is so low (and my cost of living so high) that my net worth is chugging upward at a much lower rate than I'd like. Still, I'm pleased that it's at least headed in the right direction, and perhaps accelerating.

[Dr. Doom]

I'm with you for the most part, Deborah.  I hang out on the forums mostly to learn about other peoples' lives.  Even on a forum dedicated to spending money consciously, there's an enormous difference in the amount of money different individuals deem it necessary to have prior to FI, and this in and of itself is enlightening no matter where you personally lie on that spectrum.

Also, money -- and particularly net worth -- is less interesting to me than what people are actually doing with that money, or the lifestyle challenges they're undergoing as a result of suddenly attempting to save a large portion of their income.  Or peoples' personal values, for that matter -- the things that make them tick outside of finance.  Their life stories.

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)  It always ends up being very tied to context, i.e. just seeing that number attached to somebody without a breakdown of the asset sheet and a description of their current goals, their FIRE number, doesn't mean much. Certainly not enough to warrant separate high level buckets for discussions.  NW ain't nothing but a number.

Long story short, I don't really like the idea of new categories based on NW.  The idea almost feels dirty, like a form of segregation.  I mean, what, would we name the categories Mediterranean Ave and Boardwalk?  Shantytown and Yutzville? 

[mak1277]

I couldn't care less about anyone else's net worth, but mine is particularly important to me.  NW (particularly NW available to invest) and annual expenses are the key to FIRE, so yeah...I'm a bit focused on those numbers.

But I don't think about people differently based on their NW, so new categories based on NW seems childish and stupid.

[twbird18]

Yeah, I don't get the NW discussion. People on the forums are at all stages of life and have varying goals. Just like you pointed out, there is a major difference in NW depending on when in life you discovered mustachianism and what your life goals are.

Even who you married or how many kids you have effects things. For instance if I was single, my tiny NW would make me comfortably FI right now and wouldn't impress anyone but me, but my spouse has differing requirements to be happy in life than I do so we are working toward a much higher NW.

[Jon_Snow]

Of course my own NW was of extreme importance to me. Once it reached a certain threshold I knew I was FIRE. Then I worked another 5 years just to make sure.

If your goal is FIRE, in particular the "RE" part, NW is a VITAL NUMBER. Not sure about the attempt to minimize it's importance in this thread. Frankly, the higher the number is, the better. Am I missing something here?

Even when my NW was somewhat underwhelming I still paid attention to it and it's steady growth. Watching it's progress was very motivating and helped keep me on track.

[Eric]

Think of it like playing h-o-r-s-e. I know I have to make my shots and get all the letters.

I think you're playing it wrong.  If you get all the letters, you're the horse.  That's apparently a very bad thing because being the horse means you lose!  :)

If your goal is FIRE, in particular the "RE" part, NW is a VITAL NUMBER. Not sure about the attempt to minimize it's importance in this thread. Frankly, the higher the number is, the better. Am I missing something here?

I think the point was not to care about others net worth.  Of course you'll be interested in your own.

[Jon_Snow]

Yeah, not interested in others NW apart from a benign curiousity. Okay then...

[twbird18]

I think the point was not to care about others net worth.  Of course you'll be interested in your own.

Not only to not care about others but the fact that a NW number tells you nothing. For some people, $250k is enough of a NW to be FIRE, but others need 5xs that amount for their comfort level or convenience. You don't know what the NW #means without a lot of other information about them <---- which I think is the most fun part of these forums, learning about other people's lifestyles & tips and tricks that might be applicable to your own life.

[dd564]

I'm not that Mustashian.
I have nice things that provide value, but I tend to fix everything myself instead of spending money for services.

You need something to measure by.
For me it's net worth.  I know what my networth needs to be to achieve my retirement goals.
For others the better tracking device might be % saved.

[steveo]

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)  It always ends up being very tied to context, i.e. just seeing that number attached to somebody without a breakdown of the asset sheet and a description of their current goals, their FIRE number, doesn't mean much. Certainly not enough to warrant separate high level buckets for discussions.  NW ain't nothing but a number.

NW in my situation is completely pointless because of the following factors:-

1. Our house is worth a lot of money.
2. We want to live where we live now and probably in the future.
3. Alternative housing doesn't make sense due to increased traveling time plus limited potential savings from moving. We could move overseas and possibly FIRE but my wife doesn't want too.
4. My FI assets are at this point about 20% of my total assets however due to the factors above there is no point in adding the house worth to my FI figure.

So my net worth right now is about say $900k however our current FI asset level is more like $140k.

I'll even state that our FI figure is a bit rubbery due to the fact that we have 3 kids and probably spend more than we could if we retire with just the 2 of us. So we have to budget for our current spending levels however that will probably drop as the kids become more financially independent for themselves.

[Mr. Frugalwoods]

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)

This is a discussion worth having!  Let's see if we can build a model of future familial support based upon a child's likely intelligence, fields of study, and eventual earning potential.  Can kids be ROI positive?

;-)

But honestly, net worth + expenses is the entire ball game.  If "mustachianism" is the pursuit of Financial Independence, you can't ignore half the equation.

But about that child-ROI...

[4alpacas]

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)

This is a discussion worth having!  Let's see if we can build a model of future familial support based upon a child's likely intelligence, fields of study, and eventual earning potential.  Can kids be ROI positive?

;-)

But honestly, net worth + expenses is the entire ball game.  If "mustachianism" is the pursuit of Financial Independence, you can't ignore half the equation.

But about that child-ROI...

I'm thinking child ROI is different than the cash value of a child.  For example, I could probably sell a baby on the black market for a set amount.  However, the ROI requires 18 years of input before any income was generated. 

I'm really looking forward to future equations on child-ROI and child cash valuations.

[Eric]

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)

This is a discussion worth having!  Let's see if we can build a model of future familial support based upon a child's likely intelligence, fields of study, and eventual earning potential.  Can kids be ROI positive?

;-)

But honestly, net worth + expenses is the entire ball game.  If "mustachianism" is the pursuit of Financial Independence, you can't ignore half the equation.

But about that child-ROI...

I'm thinking child ROI is different than the cash value of a child.  For example, I could probably sell a baby on the black market for a set amount.  However, the ROI requires 18 years of input before any income was generated. 

I'm really looking forward to future equations on child-ROI and child cash valuations.

Careful now.  You start selling off those kids and you may end up ineligible for Social Security.

[sirdoug007]

Just a thought from our forum sponsor:

"Learning to separate “happiness” from  “spending money” is the quickest and most reliable way to a better life.

The side-effect of this is that your life will become much less expensive and you will therefore become much wealthier very quickly.

But it’s not about the money, and as long as you think it is about the money, you’re still fucked."

http://www.mrmoneymustache.com/2014/11/23/not-extreme-frugality/


Sent from my iPhone using Tapatalk

[4alpacas]

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)

This is a discussion worth having!  Let's see if we can build a model of future familial support based upon a child's likely intelligence, fields of study, and eventual earning potential.  Can kids be ROI positive?

;-)

But honestly, net worth + expenses is the entire ball game.  If "mustachianism" is the pursuit of Financial Independence, you can't ignore half the equation.

But about that child-ROI...

I'm thinking child ROI is different than the cash value of a child.  For example, I could probably sell a baby on the black market for a set amount.  However, the ROI requires 18 years of input before any income was generated. 

I'm really looking forward to future equations on child-ROI and child cash valuations.

Careful now.  You start selling off those kids and you may end up ineligible for Social Security.

I can't worry about SS benefits.  CNN thinks I will spend $433,770 in 18 years raising my child.  http://money.cnn.com/interactive/pf/cost-of-children/

spartana, your slave labor plan better yield results of about $36k/year in order to break even on child raising, according to CNN.

[Pants]

I think your best bet would be to make offspring into child stars, a la Olsen twins. That has a potential to generate significant income early on, as long as your child is cute and well behaved.

Otherwise, child slavery or black market is plan B.

[Fuzzy Buttons]

I actually had a thought about this just last night.  My net worth happened to hit a round number that it had been heading toward for a couple of years now.  I felt a tinge of pride when I saw it had ticked over that mark in Quicken.  Then it occurred to me that this wasn't anything to take that much pride in.  It reached that number simply because my investments are up.  Later, they might go down.  Either way, it's beyond my control.  My net worth is only indirectly affected by my actions of funding the accounts.

The report in Quicken that I take the most pride in is Income vs Expenses.  That's the one that shows the percentage of my income that I am saving, and the progress I am making at removing wasteful spending from my life.  That's the one that showed a 30% saving rate in the first half of last year, and over a 50% saving rate in the second half after I started following this new frugal path. 

Even that is not a great basis for comparing to other people, though.  Your savings rate will be dictated by your income as much as by your spending, and by your life choices.  Is my savings rate of 50% good?  You can't tell without knowing my income, where I live, whether I'm married or have children or have other financial commitments. 

So in the end, the numbers are just for myself.  What I most like to gain from reading stories here is ideas about how people are choosing to live their life.

[randommadness]

Think of it like playing h-o-r-s-e. I know I have to make my shots and get all the letters.

I think you're playing it wrong.  If you get all the letters, you're the horse.  That's apparently a very bad thing because being the horse means you lose!  :)

I was in a rush! Oops, haha.

[Guses]

I use my networth as a tracking tool. For instance, between December 2013 and December 2014, our NW grew about 100K$. I am really happy about this because our net incomes are slightly lower than that. If we continue at that rythm (probable), we will be FI in 4-5 years.

[Dr. Doom]

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)

This is a discussion worth having!  Let's see if we can build a model of future familial support based upon a child's likely intelligence, fields of study, and eventual earning potential.  Can kids be ROI positive?

;-)

But honestly, net worth + expenses is the entire ball game.  If "mustachianism" is the pursuit of Financial Independence, you can't ignore half the equation.

But about that child-ROI...

I'm thinking child ROI is different than the cash value of a child.  For example, I could probably sell a baby on the black market for a set amount.  However, the ROI requires 18 years of input before any income was generated. 

I'm really looking forward to future equations on child-ROI and child cash valuations.

Careful now.  You start selling off those kids and you may end up ineligible for Social Security.

I can't worry about SS benefits.  CNN thinks I will spend $433,770 in 18 years raising my child.  http://money.cnn.com/interactive/pf/cost-of-children/

spartana, your slave labor plan better yield results of about $36k/year in order to break even on child raising, according to CNN.

$36K/year to raise a child - YIKES! OK maybe you'll have to rent them out too. I mean if they cost that much at least you should be able to make a little profit off of them :-)!

I'm really glad I encouraged a criminal element into this thread.  Highly entertaining.

[retired?]

Since I stopped working, I actually calculate it on the first of each month.  The volatility doesn't bother me, but I want to know the magnitude of the volatility.  Also, let's me see how expenses are balancing with investments.

Takes about an hour.  I think it is helpful since it can a) help me see I am fine if the numbers are pretty stable and b) help me figure out if I need to start earning some $$ at some point.  Basically, answers the question "is this really working?".

[4alpacas]

I'll also point out that NW is a mix of all sorts of stuff -- checking account balances, real estate, ETFs, bonds, annuities, life insurance, expected pensions, etc -- and people measure it very different ways (some people include their car or the cash value of their children, others don't, and so on...)

This is a discussion worth having!  Let's see if we can build a model of future familial support based upon a child's likely intelligence, fields of study, and eventual earning potential.  Can kids be ROI positive?

;-)

But honestly, net worth + expenses is the entire ball game.  If "mustachianism" is the pursuit of Financial Independence, you can't ignore half the equation.

But about that child-ROI...

I'm thinking child ROI is different than the cash value of a child.  For example, I could probably sell a baby on the black market for a set amount.  However, the ROI requires 18 years of input before any income was generated. 

I'm really looking forward to future equations on child-ROI and child cash valuations.

Careful now.  You start selling off those kids and you may end up ineligible for Social Security.

I can't worry about SS benefits.  CNN thinks I will spend $433,770 in 18 years raising my child.  http://money.cnn.com/interactive/pf/cost-of-children/

spartana, your slave labor plan better yield results of about $36k/year in order to break even on child raising, according to CNN.

$36K/year to raise a child - YIKES! OK maybe you'll have to rent them out too. I mean if they cost that much at least you should be able to make a little profit off of them :-)!

I'm really glad I encouraged a criminal element into this thread.  Highly entertaining.

Criminal? I like to think of it as my Plan B. 

I need to do a thorough analysis of output capacity, market cost, and possible diminishing value. Pants brought up some solid points about child stardom.  However, I'm a little hesitant after watching several Toddlers and Tiara commercials. 

[deborah]

Since I stopped working, I actually calculate it on the first of each month.  The volatility doesn't bother me, but I want to know the magnitude of the volatility.  Also, let's me see how expenses are balancing with investments.

Takes about an hour.  I think it is helpful since it can a) help me see I am fine if the numbers are pretty stable and b) help me figure out if I need to start earning some $$ at some point.  Basically, answers the question "is this really working?".

An hour a month? I like calculating my net worth retirement fund every week, and comparing it to a year before - it puts perspective into the market swings. So what if it is down this week - it is up from a year ago, and I have lived off it during that time! Occasionally I look at my projections - which have outgrown predictions. As you said, these things answer the question "is this really working for me?". Given that I live in Australia where housing is a much greater percentage of net worth, I never look at it. But seeing other people's net worth (especially net worth rather than retirement accounts) gives me no real understanding of their position. Although, if it is negative, they are in debt up to the eyeballs and need to do something about it.

[retired?]

Since I stopped working, I actually calculate it on the first of each month.  The volatility doesn't bother me, but I want to know the magnitude of the volatility.  Also, let's me see how expenses are balancing with investments.

Takes about an hour.  I think it is helpful since it can a) help me see I am fine if the numbers are pretty stable and b) help me figure out if I need to start earning some $$ at some point.  Basically, answers the question "is this really working?".

An hour a month? I like calculating my net worth retirement fund every week, and comparing it to a year before - it puts perspective into the market swings. So what if it is down this week - it is up from a year ago, and I have lived off it during that time! Occasionally I look at my projections - which have outgrown predictions. As you said, these things answer the question "is this really working for me?". Given that I live in Australia where housing is a much greater percentage of net worth, I never look at it. But seeing other people's net worth (especially net worth rather than retirement accounts) gives me no real understanding of their position. Although, if it is negative, they are in debt up to the eyeballs and need to do something about it.

I do have a "time series" and calculate the monthly diffs and percent diffs by category (e.g. cash up by X%, stocks down by Y%) so I know the sources of the change.  Yep, about an hour.  It is somewhat manual, but most components are online and can be accessed just by logging in.  Several retirement, a couple cash and a couple stock accounts.......I could do it more often, but I have a basic handle on the values at the weekly level just from market news.

[Mr.Chipper77]

I check Mint probably 2 or 3 times a week but mostly because its been going up with the market the way it is. I of course find my net worth important and want to see it improve while trying to help it along by being smarter in decision's. a lot of which I have learned here and some not so much.

[falcondisruptor]

I like hearing how others are living and moving their lives away from over-consumption.  Personally I wouldn't want separate net worth categories because I think everyone should be able to have an equal voice.  I do enjoy spying on other people's net worth and budgets though.

[Chuck]

NW isn't that helpful to me when determining whether or not I can FI, I choose instead to measure by my productive assets. I remove cars, home equity and emergency savings from my NW, and what is left is my current Stache size.

That said, I think NW it's self is valuable for other things, and you should certainly monitor your own.

[anisotropy]

NW is a good measure of where one is on the path of FI, another being (income - expense).

One could have a negative NW but as long as passive income > expense, it's still possible to be FI. Don't ask me how lol, maybe large pension or "consulting fees" and paying off all interest from debt? lol I don't know.