Life As A Negative Asset

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pdavi21
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Life As A Negative Asset

Post by pdavi21 » Sat Feb 16, 2019 4:45 pm

Someone mentioned not counting certain assets in net worth, and it got me thinking.

Being alive is a huge negative contribution to net worth.

Some would say being alive makes you able to create an income, but you have to work (trade hours, stress, sweat, health, etc.) to receive that income stream.

Expenses associated with life, however, exist regardless of happiness. One must have shelter, food, water, transportation for themselves and dependents and resources to follow the law.

If someone has a net worth of zero, in reality, they have a negative net worth of the net present value of the lowest possible level of all these expenses.

If we arbitrarily select the US federal poverty line to represent these expenses, a family of four has a negative annuity stream of about 25k per year (adjusted for inflation).

It makes me wonder why personal finance does not capture this liability while computing net worth, while business does. Probably because you can't buy families like you can buy businesses...

Anyways, do you think it's useful to look at base expenses (or total expenses) as a negatively valued asset?
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Life As A Negative Asset

Post by dcw213 » Sat Feb 16, 2019 5:26 pm

I like thinking about personal finance intricacies as much as the rest of this forum, but this is off the deep end in my opinion. Your life is not a business that can be valued and sold. GAAP accounting does not apply. This seems like some sort or odd optimization theory - relax and enjoy life.

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Re: Life As A Negative Asset

Post by pdavi21 » Sat Feb 16, 2019 6:15 pm

dcw213 wrote:
Sat Feb 16, 2019 5:26 pm
I like thinking about personal finance intricacies as much as the rest of this forum, but this is off the deep end in my opinion.
That's fair, but perhaps, it would be useful to, instead of falling back on something like the 4% rule, to just balance out the negative present value of expenses with the positive present value of assets and future passive income.

The fact that we exclude future expenses and future passive income while calculating a person's net worth, but are likely to include it when analyzing the value of a businesses assets seems odd to me.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Life As A Negative Asset

Post by alex_686 » Sat Feb 16, 2019 6:32 pm

There are things like contingent liabilities or pseudo liabilities which handle "negative assets", like retirement spending and the such. However you are going to a very dark place.

"Expenses associated with life, however, exist regardless of happiness. One must have shelter, food, water, transportation for themselves and dependents and resources to follow the law.

If someone has a net worth of zero, in reality, they have a negative net worth of the net present value of the lowest possible level of all these expenses."

Expect for somebody with extreme depression or on the verge of suicide, the above is false. If expenses associated with life are a contingent liability - which they are - then potential happiness must be considered an asset.

I sort of hate to veer into this territory - since it is way off out of bounds for this forum - but do you need mental healthy consulting? Depression can be a dark force.

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Re: Life As A Negative Asset

Post by bhsince87 » Sat Feb 16, 2019 6:40 pm

I nominate this for "The Worst Post Title Ever"! :happy
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Re: Life As A Negative Asset

Post by JBTX » Sat Feb 16, 2019 6:45 pm

pdavi21 wrote:
Sat Feb 16, 2019 4:45 pm
Someone mentioned not counting certain assets in net worth, and it got me thinking.

Being alive is a huge negative contribution to net worth.

Some would say being alive makes you able to create an income, but you have to work (trade hours, stress, sweat, health, etc.) to receive that income stream.

Expenses associated with life, however, exist regardless of happiness. One must have shelter, food, water, transportation for themselves and dependents and resources to follow the law.

If someone has a net worth of zero, in reality, they have a negative net worth of the net present value of the lowest possible level of all these expenses.

If we arbitrarily select the US federal poverty line to represent these expenses, a family of four has a negative annuity stream of about 25k per year (adjusted for inflation).

It makes me wonder why personal finance does not capture this liability while computing net worth, while business does. Probably because you can't buy families like you can buy businesses...

Anyways, do you think it's useful to look at base expenses (or total expenses) as a negatively valued asset?
Revenue offsets work
Utility gained from comsumption offsets spending.

Your equation above is missing the utility and benefits gained from the spending. If there were no perceived utility in the spending you wouldn't spend it in the first place.
Last edited by JBTX on Sat Feb 16, 2019 6:46 pm, edited 1 time in total.

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Re: Life As A Negative Asset

Post by VictoriaF » Sat Feb 16, 2019 6:45 pm

The answer depends on what is primary: life or assets.

If life is primary, then the relationship between life and assets is that the assets are enabling and supporting the life.
If assets are primary, then the value of life is roughly equivalent to the human capital, which usually diminishes with age.

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Re: Life As A Negative Asset

Post by dbr » Sat Feb 16, 2019 6:49 pm

The question that always applies to a computation of net worth is "for what purpose"? There are actually legal situations where such things are done, such as divorce proceedings, liability lawsuits, and the like.

The Federal Government has cost-benefit rules that deal with things like the cost of shortened lives. I have never seen an argument that a system that increases death rates has a positive cost-benefit ratio because staying alive costs money. We are rapidly verging on the bounds of dystopian fiction here.

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Re: Life As A Negative Asset

Post by nisiprius » Sat Feb 16, 2019 6:49 pm

"The key here, I think, is to… to not think of death as an end, but think of it more as a very effective way of cutting down on your expenses."--Woody Allen, in Love and Death.

(I really liked Woody Allen 1) back when he was funny, and 2) before I got so creeped out by his personal life that I couldn't stand to watch his movies any more).
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Life As A Negative Asset

Post by IPS&IPA » Sat Feb 16, 2019 7:14 pm

The value of ones life, be it a positive or a negative based on net asset value misses the entire point of life.
The value added to others, family, friends, society are huge so by looking solely at ones life and their own net worth is a narcissist view IMO.
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Re: Life As A Negative Asset

Post by 2015 » Sat Feb 16, 2019 10:36 pm

No, I do not. I view overthinking any aspect of personal finances as a highly negative asset, coming at great opportunity cost. Simplicity keeps me from having to do so.

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Re: Life As A Negative Asset

Post by bottlecap » Sun Feb 17, 2019 8:03 am

Off the deep end.

Here's the way I see it, in terms of "way out there":

"Life as a Negative Asset" > "I have a two day old, how do I contribute to its Roth IRA, to ensure its financial freedom in perpetuity" > "I'm going to try a momentum investing experiment, please follow my posts and believe everything I type on the internet".

Investing is just a tool. Up to a certain point, as an individual investor and human being, the more complex you make it to gain a small (or no) edge and the more you try to apply investing principles to everything else, the more your precious time on earth is wasted.

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Re: Life As A Negative Asset

Post by Shallowpockets » Sun Feb 17, 2019 8:26 am

Life is a consuming asset. From day 1 someone needs to put into that life in order for it to go forward. In our beginning it is others and then it is ourselves. It is quantified, look at the projected costs of raising a child to 18. Look at LTC policies.
That being said. It is still a question of LBYM. Sometimes there is no future in the present draining of the daily asset class, you as a human. Sometimes it is swimming to stay in place as you deal with the situation with the assets you have or have not.

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Re: Life As A Negative Asset

Post by sambb » Sun Feb 17, 2019 8:29 am

Longer life, or more lives - kids/pets cost financially, but they may add to happiness

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Re: Life As A Negative Asset

Post by GuySmiley » Sun Feb 17, 2019 9:46 am

Excellent thread to start a Sunday morning with a smile. Cheers!

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Re: Life As A Negative Asset

Post by Halicar » Sun Feb 17, 2019 11:33 am

I'm not sure why people are so put off by your thread title. We talk all the time about the "cost of living" and think nothing of it. It's usually in the context of comparing geographical areas, but the underlying premise is that life does in fact have a cost.

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Re: Life As A Negative Asset

Post by LadyGeek » Sun Feb 17, 2019 11:54 am

pdavi21 wrote:
Sat Feb 16, 2019 4:45 pm
...Expenses associated with life, however, exist regardless of happiness. One must have shelter, food, water, transportation for themselves and dependents and resources to follow the law.
The concept of "money vs. happiness" is used in personal finance, but under a different name.

See the wiki: Life-cycle finance
People seek to smooth spending over their lifetimes in order to obtain the greatest satisfaction from their limited resources, and the problem to be solved is how high this standard of living can be.
This is a different concept than the OP is asking, but I wanted to mention it.
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Re: Life As A Negative Asset

Post by DrGoogle2017 » Sun Feb 17, 2019 11:59 am

I don’t know about life as a negative asset. As I often discussed with my husband, the longer we live, the more money we’ll have at the end.

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Re: Life As A Negative Asset

Post by pdavi21 » Sun Feb 17, 2019 12:24 pm

DrGoogle2017 wrote:
Sun Feb 17, 2019 11:59 am
I don’t know about life as a negative asset. As I often discussed with my husband, the longer we live, the more money we’ll have at the end.
I disagree. Passive income grows whether you are alive or dead. You cannot have it, but your heirs will. Active income (i.e. jobs) ceases, but so do all active and passive expenses.

I think, perhaps, a base level of active income can be assumed. That would pretty much cancel out the base level of passive expense, and then some, in most cases, invalidating my entire idea. You would sum the net present value of two annuity streams after discounting for inflation adjusted returns of all other assets. After that, most would see their net worth increase, as minimum average income probably exceeds minimum living expenses.
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Re: Life As A Negative Asset

Post by eucalyptus » Sun Feb 17, 2019 12:28 pm

pdavi21 wrote:
Sat Feb 16, 2019 4:45 pm
Anyways, do you think it's useful to look at base expenses (or total expenses) as a negatively valued asset?

Finance or philosophy?

More of an income statement/budget/projections issue than a balance sheet issue, at least for me.

Ecclesiastes? Job? Nah. “Throw me in the shallow water before I get too deep.” Edie Brickell & New Bohemians

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Re: Life As A Negative Asset

Post by LadyGeek » Sun Feb 17, 2019 12:32 pm

pdavi21 wrote:
Sat Feb 16, 2019 4:45 pm
...It makes me wonder why personal finance does not capture this liability while computing net worth, while business does. Probably because you can't buy families like you can buy businesses...
Are referring to (tangible and intangible assets) and (tangible liabilities) that appear on a business' balance sheet? Perhaps an example would help put this in perspective.
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Re: Life As A Negative Asset

Post by pdavi21 » Sun Feb 17, 2019 12:59 pm

LadyGeek wrote:
Sun Feb 17, 2019 12:32 pm
pdavi21 wrote:
Sat Feb 16, 2019 4:45 pm
...It makes me wonder why personal finance does not capture this liability while computing net worth, while business does. Probably because you can't buy families like you can buy businesses...
Are referring to (tangible and intangible assets) and (tangible liabilities) that appear on a business' balance sheet? Perhaps an example would help put this in perspective.
An exemple would be building a plant that costs 1 million dollars, but generates a cash flow of X per year. X is only a net profit that includes all income and ALL expenses (property tax, running the heat, etc). The 1 million can either buy back stock (expected return 7 percent) or bulid the plant. Calculating the net present value of building the plant (discounting cash flow by 7 percent), one calculates it's worth 1.4 million. So they buy the plant.

Now you are the plant. How much would someone pay to buy you? Someone has 1 million to invest in your same AA (expected to make 4%). You have a net worth of 1.3 million, but your future minimum expenses (discounted by 4%) have a net present value of -400k. No way they buy you, because they lose 100k the day they do. You are only worth 900k to them (or less for risk/debt financing/etc). Maybe that's your real net worth.

EDIT: After thinking about it more, I think looking at net worth this way, a minimum base salary for those not at retirement age yet is probably necessary. After all, the plant works, and so do most people before retirement.
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Re: Life As A Negative Asset

Post by DrGoogle2017 » Sun Feb 17, 2019 1:09 pm

pdavi21 wrote:
Sun Feb 17, 2019 12:24 pm
DrGoogle2017 wrote:
Sun Feb 17, 2019 11:59 am
I don’t know about life as a negative asset. As I often discussed with my husband, the longer we live, the more money we’ll have at the end.
I disagree. Passive income grows whether you are alive or dead. You cannot have it, but your heirs will. Active income (i.e. jobs) ceases, but so do all active and passive expenses.

I think, perhaps, a base level of active income can be assumed. That would pretty much cancel out the base level of passive expense, and then some, in most cases, invalidating my entire idea. You would sum the net present value of two annuity streams after discounting for inflation adjusted returns of all other assets. After that, most would see their net worth increase, as minimum average income probably exceeds minimum living expenses.
I wasn’t thinking of heirs, but in our case one pension goes away, if my husband goes first, one pension is halved. Tax rate goes up for single. Heirs have higher tax rate. We’re already retired, so no W-2 even.

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Re: Life As A Negative Asset

Post by LadyGeek » Sun Feb 17, 2019 2:18 pm

Let's look at a basic definition. From AccountingTools:
Assets are items of economic value, which are expended over time to yield a benefit for the owner.
In the above "building a plant" example, the plant is an asset owned by a business entity or a person.

Are you intending to apply "life" as an asset? I'm thinking "life" is a person which owns the asset. I don't think you can mix the two concepts and may be the crux of your question.
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Re: Life As A Negative Asset

Post by alex_686 » Sun Feb 17, 2019 4:01 pm

pdavi21 wrote:
Sun Feb 17, 2019 12:59 pm
An exemple would be building a plant that costs 1 million dollars, but generates a cash flow of X per year. X is only a net profit that includes all income and ALL expenses (property tax, running the heat, etc). ... After thinking about it more, I think looking at net worth this way, a minimum base salary for those not at retirement age yet is probably necessary. After all, the plant works, and so do most people before retirement.
This is called "human capital". It is an important concept when coming up with your capacity to take risk, setting goals, etc. There is a fair amount of economic analysis that goes into this - both the value of future earnings and the joy one gets from life.

It is often ball-parked / estimated when doing financial planning. Note, stable professions get a low discount rate / time value rate making them more valuable than unstable professions.

It only gets really looked at when courts need to evaluate this due to divorce, wrongful death, disability, etc.

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Re: Life As A Negative Asset

Post by pdavi21 » Sun Feb 17, 2019 7:29 pm

DrGoogle2017 wrote:
Sun Feb 17, 2019 1:09 pm
pdavi21 wrote:
Sun Feb 17, 2019 12:24 pm
DrGoogle2017 wrote:
Sun Feb 17, 2019 11:59 am
I don’t know about life as a negative asset. As I often discussed with my husband, the longer we live, the more money we’ll have at the end.
I disagree. Passive income grows whether you are alive or dead. You cannot have it, but your heirs will. Active income (i.e. jobs) ceases, but so do all active and passive expenses.

I think, perhaps, a base level of active income can be assumed. That would pretty much cancel out the base level of passive expense, and then some, in most cases, invalidating my entire idea. You would sum the net present value of two annuity streams after discounting for inflation adjusted returns of all other assets. After that, most would see their net worth increase, as minimum average income probably exceeds minimum living expenses.
I wasn’t thinking of heirs, but in our case one pension goes away, if my husband goes first, one pension is halved. Tax rate goes up for single. Heirs have higher tax rate. We’re already retired, so no W-2 even.
Good point. I was forgeting about passive income that requires you to be living. Social Security and Pensions.
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Re: Life As A Negative Asset

Post by market timer » Sun Feb 17, 2019 8:21 pm

I agree with this idea in concept, but would change the phrasing/framing.

Rather than say I am worth $x, I find it more informative to think that I can spend $y/year (inflation adjusted) for the remainder of my life. To convert x to y, one option is to use a 4% SWR--I think this is most common. Alternatively, can get a quote for an inflation adjusted annuity. As you get older, you can withdraw more than 4%/year.

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Re: Life As A Negative Asset

Post by cheese_breath » Sun Feb 17, 2019 8:31 pm

Life is a different category. It's not an asset. It's priceless.
The surest way to know the future is when it becomes the past.

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Re: Life As A Negative Asset

Post by TheDDC » Sun Feb 17, 2019 8:45 pm

dbr wrote:
Sat Feb 16, 2019 6:49 pm
The question that always applies to a computation of net worth is "for what purpose"? There are actually legal situations where such things are done, such as divorce proceedings, liability lawsuits, and the like.

The Federal Government has cost-benefit rules that deal with things like the cost of shortened lives. I have never seen an argument that a system that increases death rates has a positive cost-benefit ratio because staying alive costs money. We are rapidly verging on the bounds of dystopian fiction here.
Yes. N.B. on this very forum, retirement years interpreted under the lens of "tail risk" in another thread, extolling the virtues of just killing someone once they are a "burden". Truly a dystopian turn this forum can take on a whim when nothing but "convenience" is considered.

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Re: Life As A Negative Asset

Post by cheese_breath » Sun Feb 17, 2019 9:07 pm

TheDDC wrote:
Sun Feb 17, 2019 8:45 pm
dbr wrote:
Sat Feb 16, 2019 6:49 pm
The question that always applies to a computation of net worth is "for what purpose"? There are actually legal situations where such things are done, such as divorce proceedings, liability lawsuits, and the like.

The Federal Government has cost-benefit rules that deal with things like the cost of shortened lives. I have never seen an argument that a system that increases death rates has a positive cost-benefit ratio because staying alive costs money. We are rapidly verging on the bounds of dystopian fiction here.
Yes. N.B. on this very forum, retirement years interpreted under the lens of "tail risk" in another thread, extolling the virtues of just killing someone once they are a "burden". Truly a dystopian turn this forum can take on a whim when nothing but "convenience" is considered.

-TheDDC
I suppose we could apply this 'principle' to every baby as soon as they're born and rid the planet of the human race in about a hundred years or so.
The surest way to know the future is when it becomes the past.

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Re: Life As A Negative Asset

Post by LadyGeek » Sun Feb 17, 2019 9:18 pm

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