orthoddsParticipantStatus: DentistPosts: 124Joined: 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.Brains428ParticipantStatus: PhysicianPosts: 295Joined: 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.
“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.April 6, 2019 at 3:05 pm MST #204464CordMcNallyParticipantStatus: PhysicianPosts: 2484Joined: 01/03/2017facebook posterClick 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 InvestorFIREshrinkParticipantStatus: PhysicianPosts: 953Joined: 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.ajm184ParticipantStatus: Other ProfessionalPosts: 568Joined: 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).April 6, 2019 at 6:22 pm MST #204518wa2106ParticipantStatus: PhysicianPosts: 153Joined: 11/29/2017
What about human capital? I intend to turn mine into retirement assets.
People talking in circles.
“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.
Everyone has a personal financial statement, just haven’t read it. Good luck for those that have never learned to read.rmecc001ParticipantStatus: PhysicianPosts: 23Joined: 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.
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.April 7, 2019 at 5:48 pm MST #204729HumbleInvestorParticipantStatus: Physician, Small Business OwnerPosts: 147Joined: 12/28/2016
Do business owners include their business value in NW calcs?April 7, 2019 at 6:52 pm MST #204746SLC OBParticipantStatus: PhysicianPosts: 494Joined: 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….
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.April 7, 2019 at 7:41 pm MST #204758bean1970ParticipantStatus: PhysicianPosts: 507Joined: 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).Dont_know_mindParticipantStatus: PhysicianPosts: 883Joined: 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’.