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Net worth

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  • Avatar orthodds 
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    Status: Dentist
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    Joined: 11/07/2017

    I exclude home equity value, car value, and other tangible property. I also exclude 529s, UTMAs, and other children’s assets or allocations.

    It really depends on what you plan to do with the number. I consider net worth it to be my nest egg, what will feed, cloth, sustain, and entertain me when I stop earning money from working a job (if I ever do). On the other hand, I assume that the value locked in the house will be my housing allocation throughout my life, an asset that will not generate revenue or feed or cloth me (though it potentially could).

    Click to expand…

    Then you aren’t talking about net worth.  You are talking about something else.  As has been suggested maybe it could be called “net retirement assets.”  Sounds good to me.

    #204442 Reply
    Liked by ZZZ, MPMD
    Avatar Brains428 
    Participant
    Status: Physician
    Posts: 398
    Joined: 11/09/2017

    Not to de-rail, but pertinent and don’t want to start another thread. It irks me when a facebook poster says they’re “back to broke” when their net worth is zero but still have x amount student loan debt, simply by adding in the amount in retirement accounts and the like.

    Carry on…

    #204445 Reply
    Liked by Laeno, Tim
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    “Not to de-rail, but pertinent and don’t want to start another thread. It irks me” because then bankruptcy is worthless. Both the assets and liabilities are virtually bankruptcy proof!
    Carry on. Sorry. Geeez.

    #204464 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2844
    Joined: 01/03/2017
    facebook poster

    Click to expand…

    I found your problem.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #204473 Reply
    Liked by ZZZ
    Avatar FIREshrink 
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    Status: Physician
    Posts: 1005
    Joined: 01/11/2017

    I calculate net worth. I also calculate investment portfolio. They’re not the same and I need them to do different things.

    #204512 Reply
    Liked by SLC OB, Laeno, Tim
    Avatar ajm184 
    Participant
    Status: Other Professional
    Posts: 636
    Joined: 07/14/2017

    NW or another single figure’s/ratio’s is not a panacea.  The important point of using a figure or ratio is to thoroughly understand the context/inputs for both the positive and negative aspects of a particular figure or ratio (e.g NW or PE).

    #204518 Reply
    Avatar wa2106 
    Participant
    Status: Physician
    Posts: 185
    Joined: 11/29/2017

    What about human capital?  I intend to turn mine into retirement assets.

    Stupid debate.

    People talking in circles.

    #204526 Reply
    Liked by Vagabond MD
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    @wa2106,
    “Stupid debate. People talking in circles.”
    Actually, it points out a fairly large hole in financial literacy. How to read financial statements.
    For those that want to learn how to read, be assured its very easy, you don’t need a class and it’s way simpler than any medical terminology.

    https://www.sec.gov/reportspubs/investor-publications/investorpubsbegfinstmtguidehtm.html

    Everyone has a personal financial statement, just haven’t read it. Good luck for those that have never learned to read.

    #204530 Reply
    Avatar rmecc001 
    Participant
    Status: Physician
    Posts: 23
    Joined: 02/03/2016

    I think net worth should include home equity. I have two lines in my spreadsheet, one with home equity and one without.  That’s because, as has been stated, we can’t spend the equity easily. I think all accounts meant to be spent should be excluded. If you’re going to spend it, it isn’t part of your wealth. So I exclude the 529s, the account where I put money to pay cash for cars and the account where I park future donations to our donor advised fund. Also, UTMA should be excluded. By definition those accounts belong to the kids.

    I think that gives a better picture of our spot on the road to FI.

    #204720 Reply
    Liked by ENT Doc
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3059
    Joined: 09/18/2018

    @rmecc001,
    So that’s FI NW? How do you define RE NW? Because most plan on spending a lot of accounts included and your definition says don’t count if you plan on spending it. Geez, I’m planning on spending most of it. That’s why I’m saving it. When do you change the definition?
    My point is the metric you use is custom, serves your purpose, assets dedicated to FI.

    #204729 Reply
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 207
    Joined: 12/28/2016

    Do business owners include their business value in NW calcs?

    #204746 Reply
    Avatar SLC OB 
    Participant
    Status: Physician
    Posts: 565
    Joined: 06/23/2018

    Do business owners include their business value in NW calcs?

    Click to expand…

    I would think WCI includes his business value in his NW….

    #204752 Reply
    Liked by hatton1
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3059
    Joined: 09/18/2018
    Earnest refinancing bonus

    Definitely! The difficulty is valuations.
    Your small company can have a 5-10 year exclusive contract that doesn’t show on the books. Just keeps cranking out 50% profits that you adore.

    #204758 Reply
    Avatar bean1970 
    Participant
    Status: Physician
    Posts: 550
    Joined: 07/12/2017

    Strict definition Assets owned minus liabilities.  Whether that is a functional number is different IMO.  I used PC and include everything. I include 529 plan because my husband is the owner. It is an asset we own. Its just a circle of fungible money. I pay my kid’s apartment rent out of cash management account and then pull that from the 529 to reimburse myself.    It is overfunded because he is on scholarship so it likely may just be our money in the end.  I also include our home. We own it and it is less than 5% of our NW so it isn’t going to make or break the NW number.  I think if someone has a million dollar home that is 25% of their NW, their functional number isn’t quite the same, but since 95% of our NW on PC is functional using the home in the calculation for us is fine.

    What i don’t include are the three cars, art and jewelry.  Technically is should be included in my assets but I don’t really know the actual value I leave them out. I guess you could argue the same for the home, the value is only what someone pays for it on closing…anything else is just a ballpark value.  I use on PC what we paid for the home. The zillow value is 67% higher.

    Also to remember is a great chunk of the NW is unrealized. It is just a snapshot in time if we were to completely liquidate all our assets to cash (and this would be of course before taxes).

    #204800 Reply
    Liked by Lordosis, hatton1
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 951
    Joined: 11/21/2017

    For net worth (aka net wealth) I calculate assets minus liabilities, then subtract 45% on the capital gain in case there is some legislation that repeals LT CG discount, then I add my house minus CGT (with the LT CG discount). Then I multiply by 0.98 to take into account probable transactional costs for real estate. But that is pretty idiosyncratic.

    I think Tim is right, it does go back to accounting conventions, net wealth, net present value, there are conventions and we should use the commonly accepted definitions, rather than make up our own.

    We should use the right names for things. Otherwise it gets confusing when you rename a microwave, an air-fryer and then expect others to know you are referring to a microwave when you say ‘air-fryer’.

    #204803 Reply
    Liked by Tim

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