Incorporating your home into networth calculation

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sambb
Posts: 1809
Joined: Sun Mar 10, 2013 3:31 pm

Re: Incorporating your home into networth calculation

Post by sambb » Mon Jan 11, 2016 9:38 pm

Home is definitely part of net worth.
It can be sold and money collected.
Don't see why it is more complex than that.

sambb
Posts: 1809
Joined: Sun Mar 10, 2013 3:31 pm

Re: Incorporating your home into networth calculation

Post by sambb » Sat Jan 07, 2017 7:08 pm

of course home should be in net worth calculation and mortgage should subtract.
It is a sizable asset, and it has some value

stockpile
Posts: 21
Joined: Mon Jan 25, 2016 2:23 am

Re: Incorporating your home into networth calculation

Post by stockpile » Sun Jan 08, 2017 1:24 am

I incorporate the house. For the house value you can go to trulia, zillow or mint.com and type in your address.

mchriton
Posts: 50
Joined: Sat Oct 24, 2015 3:26 pm

Re: Incorporating your home into networth calculation

Post by mchriton » Sun Jan 08, 2017 1:51 am

anonyvestor wrote:Despite all of the banter, your question was simple. Yes, the value of your house is part of your net worth. Just ask any creditor. This is a matter of law, not opinion.


Agree, the answer is unambiguous -- here are some links to definitions of net worth from IRS and others:

https://www.irs.gov/uac/soi-tax-stats-p ... d-concepts (scroll to line on net worth)
http://dictionary.cambridge.org/us/dict ... /net-worth
https://www.merriam-webster.com/legal/net%20worth

If you don't include home value, you aren't calculating net worth. Which is fine, just don't confuse the metric with net worth. It can be debated whether the value of a home is helpful for retirement planning. As others have noted, a scenario where it's useful to consider home value is when someone lives in a HCOL city and plans to relocate to LCOL for retirement. Not everyone is in the same situation - if you plan to retire in your current home or an equivalent home ignoring home equity for retirement planning is likely OK for many.

MoonOrb
Posts: 889
Joined: Thu Jan 24, 2013 6:58 pm

Re: Incorporating your home into networth calculation

Post by MoonOrb » Sun Jan 08, 2017 10:46 am

The meaningful question here IMO is "do you track net worth" and not "do you include a home in a net worth calculation."

I track three numbers:

1. Invested assets
2. Invested assets plus cash
3. Invested assets plus cash plus conservatively estimated home equity

This works for me, and I don't argue that anyone else needs to do it the same way. I like tracking the third number because it makes me feel good when it goes up and it also provides me with some information-maybe we could consider selling and moving to a lower col area? Or sell and rent? But it is the first two numbers that matter most and the third has much less utility to me.

staustin
Posts: 113
Joined: Mon Mar 14, 2011 9:36 am

Re: Incorporating your home into networth calculation

Post by staustin » Sun Jan 08, 2017 10:54 am

i'm in Klangfool's camp on this subject. A home is necessary expense at the end of the day, the cost of sheltering you and your family. And, one you'll always incur regardless. Taxes, insurance, maintenance, etc. I suppose you might calculate the delta between the value of your current home and potentially smaller retirement home but that's a theoretical exercise. Therefore, i do not contemplate it when calculating my net worth or investable assets. House rich, cash poor is just poor.

Stormbringer
Posts: 388
Joined: Sun Jun 14, 2015 7:07 am

Re: Incorporating your home into networth calculation

Post by Stormbringer » Sun Jan 08, 2017 1:28 pm

Wow, I'm surprised this is a controversial topic. Net worth is by definition total assets minus total liabilities. Terms mean what they mean, not what people think they should mean.

The more important question is, should net worth be the number you are looking at? And what does it really tell you? There are many metrics to measure your health (blood pressure, body fat, blood sugar, etc.). While they are all useful in their own way, there isn't a single one that encapsulates the totality of your health. Similarly, there are many measures of your financial well-being, and you need to look at things from a variety of perspectives.

"Net worth" may say something, but it is an imperfect measurement with limitations. Consider the following:

  • Person A has $1 million of securities in her 401(k) account.
  • Person B has $1 million of securities in his Roth IRA account.
  • Person C has $1 million of AAPL stock they bought in 1995 sitting in a taxable account.
  • Person D has $1 million in cash in their bank account.
Their net worth is all the same, but what does that really tell you? Each of them have meaningful differences. What if there was person E who had nothing, but receives $150K per year from a pension? Net worth has it's limits.

Use your home as part of your net worth. Just don't use net worth as the only measure of your finances.
"Compound interest is the most powerful force in the universe." - Albert Einstein

ubermax
Posts: 1350
Joined: Tue Feb 11, 2014 2:19 pm
Location: Connecticut

Re: Incorporating your home into networth calculation

Post by ubermax » Mon Jan 09, 2017 11:03 am

I don't give net worth much attention , right now cash flow is of bigger interest ; I know what it is roughly and I focus on liquid assets more than total assets but yes I would include the house , using a very honest and conservative appraised value net of outstanding loan balance ; in my view knowing one's net worth and including as many components as possible is great at cocktail parties where you don't know anyone and really don't want to be there :D

mchriton
Posts: 50
Joined: Sat Oct 24, 2015 3:26 pm

Re: Incorporating your home into networth calculation

Post by mchriton » Tue Jan 31, 2017 12:29 pm

mchriton wrote:Agree, the answer is unambiguous -- here are some links to definitions of net worth from IRS and others:

https://www.irs.gov/uac/soi-tax-stats-p ... d-concepts (scroll to line on net worth)
http://dictionary.cambridge.org/us/dict ... /net-worth
https://www.merriam-webster.com/legal/net%20worth


I happened upon IRS Form 8854 at https://www.irs.gov/pub/irs-pdf/f8854.pdf when I was researching the US exit tax for LTR (exit tax kicks in at an income or net worth threshold). It has a work sheet on page 5: schedule A that shows how IRS calculates net worth.

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