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PostPosted: Thu Apr 05, 2007 7:24 am 
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Location: Houston, TX
I'm not terribly concerned with my net worth, but it's no secret: Currently somewhere around $136k. (Whatever Quicken says it is)

I think home equity and vehicles should be included in the calculation. Net worth is just that, the NET of your assets and liabilities, not some abstract concept. Home equity and vehicles may not be AS liquid as stocks or CDs, but they ARE assets that have value. In the worst imaginable case scenario, liquidating everything you can get your hands on, someone would give you some other asset (money) in exchange for those items.

As for whether or not to combine marital assets/liabilities, I think you should follow the guidelines set forth by your particular state or municipality. Texas, for example, is a community property state. If my creditors are able to go after my spouse, there's not much point in trying to calculate everything separately.


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PostPosted: Thu Apr 05, 2007 8:03 am 

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I agree with putting the house and car into your net worth (which I should start doing for my net worth article next month).

However, how do you do so? Not all of us have the accounting background to know how to properly depreciate something like a car (and of course its too much work). It is probably also pretty cubersome to look at the market value of the house or car every month just to update a spread sheet, so anyone have any suggestions?

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PostPosted: Thu Apr 05, 2007 8:53 am 
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It should be sufficient to use a yearly appraisal of your home (or yearly blue book value of your car) in your calculation and use it for every month in that year. That will likely give you a bit of a stair-step effect in your net worth at the same time each year, but that's what the "Management Discussion and Analysis" section is for. :D

If you want to smooth the stair-step without getting into monthly reappraisal you could always use a straight-line assumption based on the last year or two worth of data. As I mentioned in the "why" thread, I don't think accuracy (i.e. down to how much change is in your pocket right now) is as important as the relative change.


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PostPosted: Thu Apr 05, 2007 9:32 am 
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jdroth wrote:
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...


Family. We have joint finances. In fact, my wife stays home with the boys, so she doesn't have an income in the traditional sense (aside from my undying love and admiration, of course).

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PostPosted: Thu Apr 05, 2007 9:38 am 
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tinyhands wrote:
It should be sufficient to use a yearly appraisal of your home (or yearly blue book value of your car) in your calculation and use it for every month in that year. That will likely give you a bit of a stair-step effect in your net worth at the same time each year, but that's what the "Management Discussion and Analysis" section is for. :D

If you want to smooth the stair-step without getting into monthly reappraisal you could always use a straight-line assumption based on the last year or two worth of data. As I mentioned in the "why" thread, I don't think accuracy (i.e. down to how much change is in your pocket right now) is as important as the relative change.


How do you suggest we get a yearly appraisal? Do it ourselves? Or pay an appraiser? In the case of the former, it's not worth the trouble (to me). In the case of the latter, it's not worth the cost. Same goes for the cars. It's trivial to look them up on Edmunds, but I don't need that level of detail. I'd rather have a conservative estimate of what I'm worth, as opposed to assuming that I'm willing to liquidate a car or our house to free up cash.

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PostPosted: Thu Apr 05, 2007 10:26 am 
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I calculate net worth over a year to work out how its changed and estimate my rate of return. I also think of it in The Game of Life sense, if the game stopped now, how much would I have?

When (if :roll: ) I purchase my house, I'm going to have my networth table as three separate section, assets, loans and house. The house section will have the mortgage, and an estimate of the cost of selling it, and as estimate of the market value.The market value will taken to start off with as the lower of the price I bought it at, and the price houses nearby are selling for - most houses nearby are identical.

If I was part of a couple, I would calculate individual and joint net worths, especially as tax advantaged accounts can only be held in one name (over here anyway).

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PostPosted: Sat Apr 07, 2007 2:36 am 

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Location: Taishan, Guangdong, China
I guess I'm the freak here. I wrote my own web-based portfolio tracking tool and spent a few weeks entering transactions going back more than a decade from when I started investing. The server then checks for updated symbol prices every 15 minutes so I can see almost in realtime changes in my net worth. During the recent big drop, it was almost a perverse fascination watching the value of my portfolio fall.


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PostPosted: Sat Apr 07, 2007 10:44 am 
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nickel wrote:
How do you suggest we get a yearly appraisal? Do it ourselves? Or pay an appraiser? In the case of the former, it's not worth the trouble (to me). In the case of the latter, it's not worth the cost. Same goes for the cars. It's trivial to look them up on Edmunds, but I don't need that level of detail. I'd rather have a conservative estimate of what I'm worth, as opposed to assuming that I'm willing to liquidate a car or our house to free up cash.


If your tax assessor doesn't provide you with an estimated property value, you could look up comparable home sales in your area and use that as your approximation. I agree that it's not worth the money to pay for an appraisal. As for whether it's worth your time to make the estimate yourself, that's up to you.

I think the key concept in your response is your need for level of detail. Although it's trivial to look up the price of a car on Edmunds, that's not exactly the value of YOUR car, so you're already making an estimate. As for the house, I receive a yearly appraisal from the property district (upon which my taxes are based). That too is just an estimate, as it's not to the level of detail a buyer would want. Long story short, by including house & car, my net worth calculation is based on two estimates and is therefore only approximate. (More, if you include checks floating out there and credit card transactions for which I haven't yet been invoiced.) But since the relative change is what's important to me, I'm ok with the approximations.

By including home & car, I'm not necessarily saying I'm willing to liquidate either to free up cash though. They are assets, that's all. It's the accountant in me that wants to include everything on the balance sheet.


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PostPosted: Sat Apr 07, 2007 2:03 pm 
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tinyhands wrote:
nickel wrote:
How do you suggest we get a yearly appraisal? Do it ourselves? Or pay an appraiser? In the case of the former, it's not worth the trouble (to me). In the case of the latter, it's not worth the cost. Same goes for the cars. It's trivial to look them up on Edmunds, but I don't need that level of detail. I'd rather have a conservative estimate of what I'm worth, as opposed to assuming that I'm willing to liquidate a car or our house to free up cash.


If your tax assessor doesn't provide you with an estimated property value, you could look up comparable home sales in your area and use that as your approximation. I agree that it's not worth the money to pay for an appraisal. As for whether it's worth your time to make the estimate yourself, that's up to you.

I think the key concept in your response is your need for level of detail. Although it's trivial to look up the price of a car on Edmunds, that's not exactly the value of YOUR car, so you're already making an estimate. As for the house, I receive a yearly appraisal from the property district (upon which my taxes are based). That too is just an estimate, as it's not to the level of detail a buyer would want. Long story short, by including house & car, my net worth calculation is based on two estimates and is therefore only approximate. (More, if you include checks floating out there and credit card transactions for which I haven't yet been invoiced.) But since the relative change is what's important to me, I'm ok with the approximations.

By including home & car, I'm not necessarily saying I'm willing to liquidate either to free up cash though. They are assets, that's all. It's the accountant in me that wants to include everything on the balance sheet.


Tax assessments are wildly inaccurate (on the low side) around here relative to true market value. I guess that's okay, though, since it'll give you a conservative estimate. However, we don't get re-assessed yearly.

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PostPosted: Tue Apr 10, 2007 4:54 am 

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If your tax assessment doesn't happen yearly, it's fairly easy to look up housing prices for comparable homes, and get a reasonable estimate from that. You could also call up a real estate agent, and ask them to estimate your home's worth. Most realtors will do this as a free service, on the hope that if you do decide to sell, you'll utilize their services.


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PostPosted: Tue Apr 10, 2007 5:05 am 
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George wrote:
If your tax assessment doesn't happen yearly, it's fairly easy to look up housing prices for comparable homes, and get a reasonable estimate from that. You could also call up a real estate agent, and ask them to estimate your home's worth. Most realtors will do this as a free service, on the hope that if you do decide to sell, you'll utilize their services.


Right, but that falls into the "do it myself" category, which is totally not worth it. I'd much rather roll up the numbers treating my home as "untouchable." I know, not technically correct, but for me anything more isn't very useful.

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PostPosted: Tue Apr 10, 2007 9:44 am 
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Location: Houston, TX
nickel wrote:
I'd much rather roll up the numbers treating my home as "untouchable." I know, not technically correct, but for me anything more isn't very useful.

Unless, instead of solely concentrating on the bottom line, you also periodically assess the category subtotals. If you find that too much of your net worth is concentrated in a particular asset/class, it might encourage you to further diversify. For example, if your finances take a downturn, excess value in your home might help you decide to downsize, as tough a decision as that might be. On the other hand, if you found cash accumulating in a savings account, with other well-performing and diversified investments, you might consider investing more in your home.


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PostPosted: Tue Apr 10, 2007 1:33 pm 
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One easy way to figure out what your home is worth is to look it up on a site like Zillow. I gather that some areas they have great data and some they don't have any. Also, it's just a computer with a bunch of data and an algorithm, and can't make adjustments for extremely property-specific and location-specific situations.

Those caveats notwithstanding, it's free. At least it can give you a place to start in figuring out comps and so forth.

I recently had occasion to put Zillow to the test. I live in Seattle, where I think the company is sited, and the info in our town is extensive. We're in the middle of refinancing our house after living here a year. We were hoping to convince the bank and the appraiser that, between the improvements we made on the house and the general rising tide of prices that's still ongoing here, the value of the property had risen by 20%, and so we'd achieved better than 80% LTV and could drop private mortgage insurance. I called up the Zillow listing and their main "Zestimate" was $320K. Looking at the list of comps, it was clear that several of the transactions they included were nowhere near market rate and were probably divisions of equity after marriages, breakups, whatever. Weeding those out, my mortgage banker and I figured that $325K was more likely.

$450 dollars later and the appraiser comes up with a value of...$325K.

Maybe Zillow is that good, or maybe appraisal is a big racket. Who knows, but apparently our house gained more in valuation than I earned in cash last year and that PMI is history. Good riddance!


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 Post subject: Net worth - houses
PostPosted: Tue Apr 10, 2007 2:22 pm 

Joined: Wed Apr 04, 2007 9:50 pm
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Location: Vancouver, Canada
For a while, I agreed with the financial pundits who say you shouldn't include a home in your net worth. But what if you're like me and you've thrown a *huge* amount of money towards paying down your mortgage? I don't mean the equity that goes there each month. I'm talking about making big balloon payments. Should I ignore this money? Should I ignore the effort I've put into home renovations, which raised our home's value by $35k? If I ignore these two factors, I'm ignoring an amount of money that is higher than most pre-tax household incomes. And this is not even counting the increase in equity. I can see ignoring a fluctuation in market prices, but that becomes tricky.

The truth is that the equity in a home is important. Sure, a market swing could wipe out some gains, but, for those who bought a few years ago and also made big balloon payments, it would be pretty hard to end up with negative equity.

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PostPosted: Wed Apr 11, 2007 7:17 am 

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Location: Portland, OR
It's not a matter of choosing whether or not to include home equity in your net worth. Your net worth by definition *does* include home equity, the value of your cars, and the value of all your personal possessions. If one chooses not to include any of these assets, then he is not reporting net worth. He is making up a new number, and incorrectly calling it net worth.

I think the real question is: What "worth" should you be tracking?

For a "score card" (to see how you're doing in your savings goals), I think net worth is a fine number. That number will reflect home improvements and accelerated mortgage payments. But for retirement, you need to ask whether you're willing to capitalize on your home's value. Are you willing to sell your home? If not, then it's probably *not* reasonable to include your home's value in a calculation of money available for retirement.

That doesn't mean that there's no benefit to accelerating mortgage payments. If you pay off your mortgage you *are* getting a return on your money. Further, while others are slogging away at their mortgage payments for 30 years, you'll have additional funds to invest for retirement. (Whether or not the math works out in your favor depends on the market and your situation, of course).

Personally, I track 5 numbers:
Retirement Account Value: 401ks, profit sharing, IRAs
Non-Retirement Account Value: taxable investment accounts, brokerage accounts, checking minus credit card balances
Stock Option Value: Value of unvested stock options
Net Worth: Retirement Account Value + Non-Retirement Account Value + Home Equity
Retirement Worth: (Retirement Account Value X Discount Rate) + Non-Retirement Account Value

The last value is the one that I use to see how close I am to being able to retire. Basically I discount the value of my tax-deferred accounts by a somewhat arbitrary number, which is approximately what I believe I'll owe in taxes on that money, and adding to that the value of my taxable account.

To me, that number is far more important than my net worth.

Note that in my calculations, I make the mistake that I mentioned at the start of this post. I don't include our personal possessions or cars in the net worth number I track (so.. it's not really net worth). That's because our personal possessions and cars aren't worth much. If I had to guess, I would say that combined, those items constitute perhaps 2% - 3% of our net worth. Sufficiently in the noise that I don't feel bad leaving them out.



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