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 Post subject: Best way to calculate Net Worth?
PostPosted: Wed Apr 04, 2007 6:20 pm 
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Location: Portland, Oregon
A lot of personal finance bloggers share their net worth with their readers. Most who do this are anonymous, though I can't think of a compelling reason not to reveal it even though my identity is public knowledge. I just haven't found a reason to.

Also, I don't know how other people are calculating their net worths. My wife and I keep our finances separate. Does that matter? When people post their net worths, is the information for the couple? Or just for themselves? Do they include their residence? It seems like the house ought to be included, but I've read some places that one shouldn't include home equity in calculating net worth. Are there any hard-and-fast rules (or guidelines) to this stuff?


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PostPosted: Wed Apr 04, 2007 7:01 pm 
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I don't disclose it publicly, but I do keep track of it for internal tracking purposes. When I do this, I don't factor in our house or other inanimate objects (cars, etc.). Just savings and investments minus liabilities (we don't have any other than our mortgage, and we ignore that since we also ignore the value of the house). I don't think there's a right or wrong way of doing this. My approach is more conservative since it ignores home equity and other things that have residual value.

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PostPosted: Wed Apr 04, 2007 7:08 pm 
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Nickel, are calculating family net worth or personal net worth? I suppose I could calculate both just to see how things look.

I really need to write my "why we keep our finances separate" post...


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PostPosted: Wed Apr 04, 2007 7:26 pm 

Joined: Wed Apr 04, 2007 7:18 pm
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Location: Rochester, NY AND Los Angeles, CA
I think if you're keeping your finances separate, you should just calculate your personal networth. And if you think your house ought to be included, then include it! I would, if I owned a house.


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PostPosted: Wed Apr 04, 2007 7:48 pm 
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Location: Washington DC
I could easily put a net worth calculator in the budget sheet

so far I've got

1) Budget sheet that auto-populates (good!)
2) Mortgage calculators with various options to prepay (i can improve this)
3) Retirement calculator (very basic)


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PostPosted: Wed Apr 04, 2007 8:02 pm 

Joined: Wed Apr 04, 2007 7:57 pm
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I've just started to calculate my net worth regularly. The one thing I do a little differently is I don't bother including the value of my home, but I do include my mortgage. It makes the number a little lower than it should be but the fact that it's still positive is heartening.

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PostPosted: Wed Apr 04, 2007 9:18 pm 

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I calculate net worth for us as a family - if I want to know my "personal" net worth, I just divide the family number in half. Since I'm using Quicken, I include everything into my net worth calculation other than insurance policies and personal possessions other than the big ones (home and vehicle).

Basically, this means assets include:

-Bank accounts
-Investment/retirement accounts
-Present value of house
-"Transfer value" of pensions
-Present value of vehicle

And liabilities include:
-Current balance on credit cards (paid off every month, but there's usually something owing on them)
-Mortgage

With Quicken my net worth updates on a constant basis. It's really neat to see how it's changed since last month or last year.


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 Post subject: My wife and I combine our net worth
PostPosted: Wed Apr 04, 2007 9:25 pm 

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For myself, I calculate our combined net worth. All our assets -- bank accounts, car, etc -- are combined, so it wouldn't make sense for us to separate them. I don't think there's a hard-and-fast rule on this, but it would be interesting to see what the other PF bloggers do.

We considered separating our finances at one point, but the way we look at it, we're a team, and we feel we have a better relationship by working together on our finances. But I can see how keeping them separate would be a good idea, especially for people who have different financial goals and habits.

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PostPosted: Wed Apr 04, 2007 9:26 pm 

Joined: Wed Apr 04, 2007 9:19 pm
Posts: 34
Location: Portland, OR
We calculate our net worth as a couple; I suppose that makes it tough to compare, because obviously (hopefully!) our net worth will exceed that of a single person.

But we could get the individual worth easily enough, by dividing by two.

I believe in trying to be somewhat accurate in net worth, which means including everything that has worth. Basically we just add up all of our assets, and subtract our liabilities.

However, I think it's important to remember that the resulting number isn't necessarily *useful*. For example having $1M in a 401K account is very different than having $1M readily accessible in a taxable account. The latter is worth a whole lot more. Further, including one's home worth isn't very useful, because you have to live somewhere.

So I also calculate a "retirement worth". This number is the after-tax value of my accounts (I assume I'll be losing 40% of the value of tax deferred accounts to taxes) without my home value added in. That number is what I use to get an idea whether or not I can start thinking about retirement...

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PostPosted: Wed Apr 04, 2007 9:41 pm 

Joined: Wed Apr 04, 2007 9:31 pm
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Location: Phx, AZ
When I first calculated my net worth three years ago or so, it was negative! I kept track of it until I had positive networth (woo-hoo!), because that was a big deal.

Now however, I measure my wealth by one thing: cash flow. My end financial goal is not a networth, but rather x amount of passive cash flow each month/year.

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PostPosted: Wed Apr 04, 2007 9:45 pm 
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Quote:
My end financial goal is not a networth, but rather x amount of passive cash flow each month/year.


Yeah, this is an excellent concept, and one I need to explore more fully in the future (both personally and on the blog). There are many ways to measure financial success. There's no question that increased cash flow leads to increased net worth! They go hand-in-hand. I think today's question (from Annie, who was feeling broke) is a perfect example of somebody who has decent net worth but whose cash flow makes them feel poor.


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PostPosted: Wed Apr 04, 2007 10:02 pm 

Joined: Wed Apr 04, 2007 9:31 pm
Posts: 8
Location: Phx, AZ
House rich, cash poor? Yeah, that leads to another topic - the idea of the wealth effect. It really is nothing other that when house values are up, people feel good, and spend more. When house values are down, people feel less secure and therefore spend less. Cash flow isn't based off the values of things, which is why its great. Love to see more of that...I love cash flow!

Your girl with the girl with the question can't see that she has everything she needs- her problem is she is "playing by the rules"- rules other people set that are not necessarily the "right way"- whatever that is.

IMH, she should take her cash flow, grab copies of her credit creports and go shopping for home loans- she doesn't even know what she can get, because she has let other people limit her thinking.

Can't let people limit your thinking. Don't have money? Figure out how to get it, borrow it, or how to do it without money.

Sorry for the rant- these could be for a different thread!

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 Post subject: Net worth calculation
PostPosted: Wed Apr 04, 2007 10:31 pm 

Joined: Wed Apr 04, 2007 9:50 pm
Posts: 752
Location: Vancouver, Canada
I calculate individual and combined net worth. I just add up assets for each of us, our combined assets and then our liability (joint mortgage). So I can view net worth by either means. However, we operate as a joint entity, so it makes sense to look at the big picture.

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 Post subject: Net Worth Suggestion
PostPosted: Thu Apr 05, 2007 5:49 am 
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Location: New Jersey
If your combined net worth is intended to benefit both you and your wife, it only makes sense to focus on that. I’d suggest start out this way and then if there are specific elements that are completely exclusive to her, you can subtract those items out if you really want to for an "adjusted" combined net worth.

If you want to calculate individual net worth, I would base it on “practical” ownership, not “named” ownership. For example, if the house is in your name but you both live there, than count half. Ownership rights of married couples varies state to state, but unless your are preparing for a divorce, practical ownership should provide a good picture of individual net worth.


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PostPosted: Thu Apr 05, 2007 6:05 am 
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Net Worth is not a concept that I radically care about.

Month-to-Month, Year-To-Year, I want to know that I achieved the following

1) Did I spend less than I earned?
2) Did I contribute my goal percentage to savings?
3) Are my savings vehicles out-performing inflation?
4) Are my investments aligned to current market conditions. Are they aligned to future market conditions?

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