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What net worth do you consider financially wealthy?

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  • Avatar StarTrekDoc 
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    Earnest refinancing bonus

    Case1:   1 primary house 1M;  brokerage: 2M ;  no debt:  =  NW = 3M  (house costs $3k monthly)

    Case 2:  Rental house:   Brokerage 3M; no debt =  NW  =  3M   (rental $6k monthly)

    Case 3:  1 primary house 1M;  10 rentals  = 2M assessed value with 1.6M debt; brokerage 1.6 =  NW = 3M   (house costs 3k months;  10 rentals generate cashflow net positive 10K monthly — very low cashflow of 0.5% but appreciates at 5% per year)

    Case 4:  Rental house:  10 rentals 3M assessed with 0 debt; brokerage  0   NW = 3M

    All three NW are the same – which is best?

    #242954 Reply
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    Avatar AR 
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    Different people define financial wealth differently, which is why I posted this question. I’m curious on how others define wealth. I personally think of someone with net assets (outside primary residence) of worth more than 30 million as wealthy.

    Click to expand…

    I got a chuckle out of the carve out for primary residence.  As if 30 million including primary residence doesn’t make the “wealthy” cut.

    #242955 Reply
    Avatar benign_user 
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    I just think it’s dumb how some people include primary residence in their net worth calculations.

    #242957 Reply
    Lordosis Lordosis 
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    I just think it’s dumb how some people include primary residence in their net worth calculations.

    Click to expand…

    Here we go again!

    “Never let your sense of morals prevent you from doing what is right.”

    Avatar StarTrekDoc 
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    I just think it’s dumb how some people include primary residence in their net worth calculations.

    Click to expand…

    So Case 2 is significantly more wealthy than Case 1 then and ahead of the curve compared to Case 1?   You optics says it they are by 1M.

    #242965 Reply
    Avatar benign_user 
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    Yes the two have equivalent invested assets but case one has less annual expenditure.

    #242969 Reply
    Avatar Anne 
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    It’s dumb not to include the value of your primary residence (or all residences that you own for that matter) in net worth. It’s important for estate planning. The purpose of a net worth calculation is not just to determine if you can stop working/how much you can spend in retirement/etc. If you want to calculate a different number for those purposes than do that but it’s not the definition of net worth.

    Avatar benign_user 
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    The reason it’s dumb to include personal property is that most of the time people are tied to an area and can’t just sell their home. For example these two people to me have equivalent net worths:

    Person 1: paid off house in the Midwest worth 300K with 2million brokerage account
    Person 2: paid off house in Bay Area worth 3 million with 2 million brokerage account

    Since both people are tied to the area their living in and can’t move they both have the same buying power so i see both as having the same net worth.

    Also unless your estate is with >22million the new tax law won’t affect either of you when you die

    #242975 Reply
    Avatar Peds 
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    The reason it’s dumb to include personal property is that most of the time people are tied to an area and can’t just sell their home

    well once you learn the definition of “net worth” youll realize it has nothing to do with liquidity, ease of value, length of ownership, etc.

     

    should spend more time reading the forum.

    #242978 Reply
    Avatar Anne 
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    11.4 (single)/22.8 (couple) million is the current estate tax exemption. Additionally some states have estate taxes. The exemption limit has changed in the past and will likely change again in the future. The limit on the day you die is what will affect your estate, not the limit now. Net worth has an actual definition. The person in the Bay Area in your example absolutely has a higher net worth than the person in the Midwest in your example. Do they have a higher buying power or a better case for financial security if they were to quit working if they are not willing to sell/move? No. But a higher net worth…yes.

    #242979 Reply
    Avatar bean1970 
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    Also unless your estate is with >22million the new tax law won’t affect either of you when you die

    Click to expand…

    Federal estate tax exemption is moving target. When this law expires it is up for fair game again. Most of us will be living when this tax law expires….

    State estate tax exemptions for those states with estate and death taxes are MUCH lower, so for those people it affects many more individuals. don’t forget about your state!

    #242982 Reply
    jfoxcpacfp jfoxcpacfp 
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    The reason it’s dumb to include personal property is that most of the time people are tied to an area and can’t just sell their home. For example these two people to me have equivalent net worths:

    Person 1: paid off house in the Midwest worth 300K with 2million brokerage account
    Person 2: paid off house in Bay Area worth 3 million with 2 million brokerage account

    Since both people are tied to the area their living in and can’t move they both have the same buying power so i see both as having the same net worth.

    Also unless your estate is with >22million the new tax law won’t affect either of you when you die

    Click to expand…

    Technically, personal property and real estate are defined differently. Personal property is an asset that loses value when you put it into use, such as a vehicle (except collectibles). It doesn’t appreciate, it depreciates.

    Your opinion that people “can’t just sell their home” and that anybody can change the definition of net worth to suit their own whim is just that – an opinion. You don’t get to make up your own definition of a universally accepted financial term like “net worth”, “net income”, or EBITDA. If you could, then you would be able to rewrite the forms when your bank asks you to complete a net worth report to qualify for financing.

    Now, your house may have more debt on it than appraised value, which will decrease your net worth. Or you may be in a very hot real estate market and can get a bid on your house for more than asking value the next day. But your residence is a tangible asset and is a component of your net worth. The fact that it may or may not sell readily is inconsequential, as is the fact that a person may “feel” tied to their area. People move to new neighborhoods all the time. That is a choice.

    If you were the banker in the above example, which person would you approve for a $500k HELOC?

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #242985 Reply
    hatton1 hatton1 
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    I would feel poor if I lived in the bay area.  I recently bought a house for cash.  That made me feel somewhat wealthy.  I could not of done that in the bay area.   I believe net worth includes the value of your home and any significant assets that you own.  Another number to think of is your financial asset number.  This is the number net of your primary residence and personal property.  This number is used for the 4% calculation.

    #242987 Reply
    Avatar Panscan 
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    Most people are tied to an area? Says who. If it’s between going broke and not I think you’ll find people are more flexible.

    #242988 Reply
    Liked by CM
    jfoxcpacfp jfoxcpacfp 
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    Also unless your estate is with >22million the new tax law won’t affect either of you when you die

    Click to expand…

    Federal estate tax exemption is moving target. When this law expires it is up for fair game again. Most of us will be living when this tax law expires….

    State estate tax exemptions for those states with estate and death taxes are MUCH lower, so for those people it affects many more individuals. don’t forget about your state!

    Click to expand…

    Good point. And 2 states have both! Check this map to see where your state falls. Note that it is the state you die in or own property in at death (real estate is the prime culprit) that matters, not the state in which you built your fortune.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #242990 Reply
    Liked by PhotonsRGR8

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