Net Worth 1 Million in 5 years

[feh]

Why do you include your property value?

Because the topic of this thread is net worth, not investment assets.

Value of property and liabilities against that property (ie. mortgage) are part of the net worth calculation.

[rennigade]

Because the topic of this thread is net worth, not investment assets.

Value of property and liabilities against that property (ie. mortgage) are part of the net worth calculation.

Makes sense. I still dont get why net worth of a million is a goal. I guess its a way for people to say they have a million in something.

Like I said...I work with a bunch of "millionaires" who can barely pay their bills and live paycheck to paycheck. But at least a lotta them have a million net worth.

[tripods68]

Because the topic of this thread is net worth, not investment assets.

Value of property and liabilities against that property (ie. mortgage) are part of the net worth calculation.

Exactly....its a basic accounting term we use in personal finance:

Asset - Liability = Net Worth

Investable asset like mutual funds/ETFs does not paint the whole financial picture without other assets (home, cars, jewelry, piccaso painting, etc). No we don't own Picasso

The more we reduce liability amount the faster the asset grows, thus higher net worth. Another reason is sticking to monthly budget. These what helps grows our net worth in addition to market gains.

[sv2007]

...
We can definitely achieve it in 10 years. But I want 5 years time horizon. Can we do it?

I wish you luck.

Only you can tell whether you can or not since you control the variables used in your projections.

Just remember to put the money you've already saved to work so that they contribute to your income too.

[sv2007]

Makes sense. I still dont get why net worth of a million is a goal. I guess its a way for people to say they have a million in something.

Like I said...I work with a bunch of "millionaires" who can barely pay their bills and live paycheck to paycheck. But at least a lotta them have a million net worth.

I think a million $ net worth is a worthy goal because (and probably most importantly) it is attainable and gives you a nice round goal to save towards.

No matter how much one makes, if his/her standard of living causes expenses to comes close or even exceed income, then that person will always live pay check to pay check. Having a $1m new worth can still be very useful as it provides something to fall back on (by liquidating assets).

[tripods68]

Like I said...I work with a bunch of "millionaires" who can barely pay their bills and live paycheck to paycheck. But at least a lotta them have a million net worth.

I don't consider anyone that own a million dollar home, a millionaire unless they are completely debt free. That's just feeding the media hype the public perceptions often not the reality. I have several friends lives in San Jose/Silicon Valley area, their homes are worth a million. But they make average $150K a year but they also have enormous debt with very little savings.

[TexasHusker]

your personal home probably shouldn't be calculated as part of your net worth, as it won't be liquidated unless you croak.

[TexasHusker]

I don't consider anyone that own a million dollar home, a millionaire unless they are completely debt free. That's just feeding the media hype the public perceptions often not the reality. I have several friends lives in San Jose/Silicon Valley area, their homes are worth a million. But they make average $150K a year but they also have enormous debt with very little savings.

Net worth is calculated from deducting liabilities (debt) from assets. Most millionaires (and in fact billionaires) are not debt free, and in fact they are likely where they are at because they figured out you can get a lot richer, a lot quicker, with other peoples' money.

"Savings" is a purely subjective term.

[tripods68]

your personal home probably shouldn't be calculated as part of your net worth, as it won't be liquidated unless you croak.

...No! I can't even respond this.

[disneysteve]

your personal home probably shouldn't be calculated as part of your net worth, as it won't be liquidated unless you croak.

Or unless you sell it and move somewhere cheaper. It's called downsizing. People do it all the time.

[bjl584]

your personal home probably shouldn't be calculated as part of your net worth, as it won't be liquidated unless you croak.

I sold a house back in 2011. The proceeds paid off the original mortgage and I was left with a substantial amount of cash which I used to buy a new house last year. I did all this without dying.

You can argue both ways whether or not a house should be included as part of your net worth, but a house does have value and can be liquidated for cash, and you don't have to die for it to happen.

[feh]

You can argue both ways whether or not a house should be included as part of your net worth...

Actually, you can't. Net worth has a very specific definition.

[bjl584]

Actually, you can't. Net worth has a very specific definition.

http://www.investopedia.com/terms/n/networth.asp

Investopedia's definition would have you count it. So in its purest form, yes, count it.

I guess what I mean to say is that maybe some people "shouldn't" count it as part of their net worth. People that aren't that savvy with money can get a false sense of security if they do.

If you have a house worth $500,000 and a 401K with 125,000 in it, you may or may not be ready to retire. But, seeing a net worth of $625,000 on paper may make someone that it not really ready to retire "think" that they are.

[Fishindude77]

A paid off home or any true equity in your home is absolutely part of your net worth. You could cash that out just like you could cash any other asset out.

[Singuy]

A paid off home or any true equity in your home is absolutely part of your net worth. You could cash that out just like you could cash any other asset out.

I agree. Someone who dumped all their spare cash into the house vs the bank/stock market is the same thing. Having a mortgage of -500k and having 400k in your bank vs -100k mortgage with 0 cash is the same thing. You can argue that investing the 400k may give you a better yield than the 3-4% interest you save but that's not the point of net worth.