how do you work out your net worth? i have heard different things, of what you should and shouldn't include. so if someone here can give me a straight answer - that would be great!
i just figured it would be interesting to work it out.
net worth?
April 26th, 2009 at 01:58 am
April 26th, 2009 at 03:07 am 1240715222
Assets: cash on hand, checking, savings, retirement accounts, investment accounts
Liabilities-- any money owed for anything -- car loan, mortgage, personal loans, credit card balances, etc.
As you can see, I didn't include in assets the car value or home value - both of those are so fluctuating and hard to have a objective real true value placed, that it seems pointless to include them.
April 26th, 2009 at 05:36 am 1240724196
April 26th, 2009 at 07:47 am 1240732058
April 26th, 2009 at 07:48 am 1240732135
April 26th, 2009 at 10:41 pm 1240785697
That being said, I track my net worth in order to track my overall financial progress. I include all of my assets and debts, of course. But I change the method a little bit so that the information is useful:
The cars are depreciated (as businesses would). The reason? We pay cash for our cars. To buy a newer car would reduce our assets considerably - the cash would be thrown into a void. But we have an "asset" that is sellable and valuable. (To add a loan with no corresponding asset creates the same problem). When you buy a car you don't throw your money down a hole. You buy a valuable asset that loses value over time. I actually depreciate the cars rather rapidly. But it just makes sense as far as tracking financial progress, to include the cars. Probably because they are BIG purchases AND assets.
That being said we do not bother tracking any other assets (like TVs, etc.). They depreciate far too rapidly and are not worth keeping track of, in my opinion. We track the cars because they are BIG expenses. If we bought any other BIG assets I would consider treating them similarly.
The house has similar issues. It is the biggest purchase we will ever make. We have almost $100k in our house. I obviously can't track our true financial progress without counting the house. I know in this environment everyone suddenly thinks a house is useless. But it is a sellable asset. Anyway, the value of our house has yo-yoed between $250k and $650k, just in a few short years. We finally decided to track the assessed value as part of our net worth. The house asset = assessed value. The reason I went with this is because in California it can not increase more than 2-3% per year (assessed value). BUT it can drop to whatever home prices fall to. So overall, our net worth always shows a reasonable price for the home. When prices are going up, we can show a reasonable appreciation. Which is expected in the long run. But if the value gets back up to $600k+, I am not going to bother showing that on our net worth progress. Completely out of our control and does not show anything about our true financial progress (that equity was there today; gone tomorrow). On the other hand, if the value dropped lower, that would be an issue and would reflect our true economic standing (we may only be able to sell it for less than we paid). Thus, any price drops I would track more meticulously. Assessed value just happens to cover all these bases. Our assessed value right now is $320k and FMV hasn't dropped below $325k yet. If we moved to another state (or if laws change) I would re-create the assessed value, California style.
I have thought a lot about this - and I have been tracking my net worth in this manner a couple of years. In fact I went back and revalued our house to assessed value for all prior years. I find it to be much more meaningful.
April 26th, 2009 at 11:41 pm 1240789319
Liabilities are all my debts. Mortgage, student loans, credit card balances and personal loans.
Assets minus liabilities equal net worth.
April 27th, 2009 at 01:22 am 1240795376
April 27th, 2009 at 06:52 am 1240815136
April 28th, 2009 at 01:07 am 1240880874
Its the price that I could sell it for in a day.
A price so good that I could have cash in hand in one day...
Intend to drop the car value by 500 every 6 mthss....
In 6 yrs it will be worthless on paper !! hehe