For those of you who calculate your net worth

[Ima saver]

We have to prove our net worth every year to the licensing board of North Carolina. They tell you to list your home, other property and vehicles. Of course, you also list how much you still owe on them.
I figure I will sell my big house in retirement and live in something less expensive.

[Aleta]

For me to know where I am at, I calculate everything. It's amazing how much your homes are worth and especially if you've been there for quite a while and bought it a lower price. When we did our calculations with a brokerage firm, they did what Steve said in even calculating things I would neve sell as if it would be part of my retirement. I guess in the skeem of things that is what you are worth.

To the poster that said that the car wasn't included because it could be totaled in one day. For that matter, someone could break into your house and steal any cash, expensive art, jewelry, or anything that is valuable. In the end you would add it.

For everyday finances, I include what I feel like is attainable: cash, bank accounts, bonds, IRA's , 401-K's or whatever you have.

[Scanner]

That doesn't make sense to me since I'm not planning on hocking my wife's jewelry or selling the sofa and tv when I need to buy food in retirement.

Dowwwlllll!!!!

[sweeps]

This net worth thing is completely arbitrary. Everyone has a different opinion of what it means, so what good is it?

I'm puzzled by the idea that "depreciating assets" wouldn't be included. All assets can depreciate, including stocks (2000-2003) and housing (2005-present). Even cash (in terms of U.S. dollars) is depreciating fast... should that not be included in net worth?

I think InDebtInDC has a point that there are intangible assets that could be considered in a net worth calculation. I'd rather be broke and have a good job paying $200K/year, than have $1 million and have no potential for future income.

[disneysteve]

I think InDebtInDC has a point that there are intangible assets that could be considered in a net worth calculation.

But how would you assign a dollar value to those things?

[Scanner]

I'd rather be broke and have a good job paying $200K/year, than have $1 million and have no potential for future income

I don't know about that. . .hard call. . .I may take the million and run if you are offering for me to leave my day job

[autoxer]

I include my car in my NET worth calculation, because that is what I would be worth if I died and everything had to be liquidated. But I don't use my NET worth number to decided if I'm on track for my retirement. My net worth statement does have a total of retirement savings, so it's pretty easy to figure out, but retirement isn't the only reason that I'm tracking NET worth.

[sweeps]

I don't know about that. . .hard call. . .I may take the million and run if you are offering for me to leave my day job

Ok, but you cannot earn ANY future income. That $1 million must last you the rest of your life. (Don't forget the eroding effects of inflation.)

But how would you assign a dollar value to those things?

Granted, it wouldn't be easy. But you could make an estimate of what you will earn over your lifetime, and then calculate the present value of that cash flow.

Also granted, I don't know how useful this is, just like I don't see how useful any of these net worth calculations are.

[autoxer]

... just like I don't see how useful any of these net worth calculations are.

It's a financial checkup. It doesn't matter which way you do it as long as you do it the same each time. Then you can see whether you are making progress or working backwards. After I started tracking my net worth monthly, I was more aware of what I was doing with my money and my net worth has increased dramatically. Seeing the bigger picture helped me put all of those little wants into perspective.

[disneysteve]

It's a financial checkup. It doesn't matter which way you do it as long as you do it the same each time. Then you can see whether you are making progress or working backwards.

Exactly. And that's also why I don't include the value of my home. I have no control over whether my home's value goes up, down or sideways. If I included it's value and my net worth had dropped due to my home's value falling, that wouldn't give an accurate picture of how I'm actually doing in preparing for the future. I want to know if we are saving and investing adequately to meet our future goals and needs. The value of my home has nothing to do with that.

[autoxer]

I want to know if we are saving and investing adequately to meet our future goals and needs. The value of my home has nothing to do with that.

What if your future goals and needs involved upsizing or downsizing?

[sweeps]

A goal analysis is a wonderful thing. You figure out how much in assets you have dedicated to a goal and -- considering a certain time horizon -- figure out how much you must save to accomplish that goal.

A net worth calculation is a just a snapshot in time that doesn't serve much other than seeing how you stack up against other people. It doesn't serve a good purpose, and since everyone calculates it differently, it's not even that accurate.

[disneysteve]

What if your future goals and needs involved upsizing or downsizing?

At the moment, they don't, though I certainly realize that can change. What I don't want is to base my retirement on the value of my home, which I think more and more people are doing. I don't want to be forced to downsize because I need the money. I'd rather invest enough to cover everything and have the value of the home just be a bonus. Same goes for Social Security. I don't count that in my retirement planning calculations.

[autoxer]

A goal analysis is a wonderful thing. You figure out how much in assets you have dedicated to a goal and -- considering a certain time horizon -- figure out how much you must save to accomplish that goal.

I need to look at the big picture to see how my different goals fit together. I want to buy a house, buy a sportscar and retire in 35 years. I can't dedicate dollars to certain goals, without counting them all up. As my goals change, I change what I'm doing with my money. I downsized my car to free up some money to put towards a house downpayment, so they all are intertwined.

A net worth calculation is a just a snapshot in time that doesn't serve much other than seeing how you stack up against other people. It doesn't serve a good purpose, and since everyone calculates it differently, it's not even that accurate.

Quit comparing it to other people. That's not what it's for. I compare my net worth snapshot to last months and last years net worth shapshot. I use it to measure my financial progress, which serves a good purpose for me.

[InDebtInDC]

But how would you assign a dollar value to those things?

When doing a valuation of a company, you could project earnings for a number of years until dissolution of the company. You then discount those earnings for time and add them up to the balance sheet numbers.

It's a little more complicated than that, but for personal finance I think it would be tough to assign number to future wages. The closest I can think of is life insurance and other annuities inheritable after death.


I would like to add that the net worth is relative to the perspective of the viewer. For example, a person's net worth is different for that person's perspective as compared with another entity's perspective, such as a company or the government. Different people use different numbers to calculate net worth of the same person.