Comments on: JLP’s Question of the Day – Net Worth http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Fri, 20 Nov 2009 19:56:44 -0800 http://wordpress.org/?v=abc hourly 1 By: Will http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-36921 Will Sat, 28 Oct 2006 06:16:32 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-36921 4 thoughts: 1) If one's intent of networth is to use it as a tool for Financial Independence, then it is most useful if one clearly separates income producing and non-income producing assets; and subsequently conservatively estimate all non-income producing assets. 2) If homes are assets, then include them when evaluating asset allocations. Most posts I've seen include only Stocks/mutual funds/Bonds/Real Estates/etc.... (overwhelmingly the first 2 or 3) 2.1) But homes or primary residences are different in that they don't generate income most of the time, but incure expenses, such as: property tax, utiltities, insurance, maintenance. 2.2)If one considers homes or primary residences as assets within asset allocations, I would guess an overwhelming majority of bloggers on NetworthIQ.com are way overloaded in homes/primary residences being their dominant investment in terms of asset allocation (within their networth). 4 thoughts:
1) If one’s intent of networth is to use it as a tool for Financial Independence, then it is most useful if one clearly separates income producing and non-income producing assets; and subsequently conservatively estimate all non-income producing assets.
2) If homes are assets, then include them when evaluating asset allocations. Most posts I’ve seen include only Stocks/mutual funds/Bonds/Real Estates/etc…. (overwhelmingly the first 2 or 3)
2.1) But homes or primary residences are different in that they don’t generate income most of the time, but incure expenses, such as: property tax, utiltities, insurance, maintenance.
2.2)If one considers homes or primary residences as assets within asset allocations, I would guess an overwhelming majority of bloggers on NetworthIQ.com are way overloaded in homes/primary residences being their dominant investment in terms of asset allocation (within their networth).

]]> By: Frugal http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-32638 Frugal Fri, 13 Oct 2006 20:09:08 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-32638 I'd say yes. Always use market price. If someone see that 80% of the networth is coming from home equity, he or she should be thinking about diversifying the networth out of the home. Without including everything, you won't be able to make a good judgment when you should. I’d say yes. Always use market price.
If someone see that 80% of the networth is coming from home equity, he or she should be thinking about diversifying the networth out of the home.
Without including everything, you won’t be able to make a good judgment when you should.

]]> By: traineeinvestor http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31757 traineeinvestor Wed, 11 Oct 2006 06:10:42 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31757 Definitely part of our net worth and an integral part of our retirement plan. Unlike a car, a home is generally a store of value. The value may fluctuate, but it is still an asset that has value and treated as part of a financial plan. Our home is part of our financial plan for three reasons. The first is that it saves us money (at the time we purchased) because the cost of ownership was less than the cost of renting. The second is that the "p" component on our mortgage payments represents a form of automatic savings. The third is that when we retire our home will be debt free - meaning that there will be a valuable asset that we can extract value from either by way of a sale or a mortgage should the need arise. We think of the debt free home as a form of insurance should things go wrong with the rest of the retirement plan. Questions of valuation are rather arbitrary for me because our retirement goals are benchmarked against income streams and living expenses rather than net worth. For what its worth, we value our properties (including our home) at our estimate of market value, usually erring on the conservative side. One more point. There is a strong correlation between net worth and owning a home. Definitely part of our net worth and an integral part of our retirement plan.

Unlike a car, a home is generally a store of value. The value may fluctuate, but it is still an asset that has value and treated as part of a financial plan.

Our home is part of our financial plan for three reasons. The first is that it saves us money (at the time we purchased) because the cost of ownership was less than the cost of renting. The second is that the “p” component on our mortgage payments represents a form of automatic savings. The third is that when we retire our home will be debt free – meaning that there will be a valuable asset that we can extract value from either by way of a sale or a mortgage should the need arise. We think of the debt free home as a form of insurance should things go wrong with the rest of the retirement plan.

Questions of valuation are rather arbitrary for me because our retirement goals are benchmarked against income streams and living expenses rather than net worth. For what its worth, we value our properties (including our home) at our estimate of market value, usually erring on the conservative side.

One more point. There is a strong correlation between net worth and owning a home.

]]> By: Golbguru http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31751 Golbguru Wed, 11 Oct 2006 05:23:26 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31751 If you do something like #11 (Brad) then perhaps you can include your home value in your net worth. But do many people do that? I don't think so. If it is just a technicality of the concept of "net worth" then fine, you can be technically correct by including your house. But then you have to be careful because the net worth statement can become deceptive. It can make you feel richer than you really are. I know I have an ultra-conservative view on this. If you do something like #11 (Brad) then perhaps you can include your home value in your net worth. But do many people do that? I don’t think so.

If it is just a technicality of the concept of “net worth” then fine, you can be technically correct by including your house. But then you have to be careful because the net worth statement can become deceptive. It can make you feel richer than you really are.

I know I have an ultra-conservative view on this.

]]> By: Medicated Money » Another Damn Good Question http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31731 Medicated Money » Another Damn Good Question Wed, 11 Oct 2006 01:46:09 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31731 [...] JLP over at All Financial Matters posted another great question of the day. Should home equity be included in figuring net worth? [...] [...] JLP over at All Financial Matters posted another great question of the day. Should home equity be included in figuring net worth? [...]

]]> By: S/100/30 http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31726 S/100/30 Wed, 11 Oct 2006 00:36:02 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31726 I include ours, but only at the purchase price from 3 years ago. <i>If you’re not going to count your house, why would you could any stocks you own? Stocks are much more volatile than home prices, and they too only have value on paper until you sell.</i> Excellent point. I include ours, but only at the purchase price from 3 years ago.

If you’re not going to count your house, why would you could any stocks you own? Stocks are much more volatile than home prices, and they too only have value on paper until you sell.

Excellent point.

]]> By: Medicated Money http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31724 Medicated Money Wed, 11 Oct 2006 00:33:13 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31724 Yes, with a stipulation! I believe that one should include the house as an asset on their statement as well as the loan against the house as a liability! For the liability part, that is simple to calculate or know. As for the asset, well, that is a little more difficult. To determine the worth, though, one has 3 choices to determine the worth. 1) Sell the house - Clearly the market will decide the worth 2) Have the house appraised – Good idea, but will cost you cold, hard cash 3) Go with the price one purchased the house for Obviously, option 1 will give you the most accurate value, but not the best way to find out if you want to stay in the house. The second will determine the worth, but cost you a few hundred bucks for each assessment. The 3rd is the most logical. If you determine the worth by any other means, it is not completely accurate and therefore you will either inflate or deflate your 'true' net worth. As for cars, jewelry, home furnishings, and all the other stuff you can throw on there to make the number go up or down, I say to each their own (I like to keep it as minimal as possible, keeps us motivated)! -Medicated Yes, with a stipulation! I believe that one should include the house as an asset on their statement as well as the loan against the house as a liability! For the liability part, that is simple to calculate or know. As for the asset, well, that is a little more difficult.

To determine the worth, though, one has 3 choices to determine the worth.

1) Sell the house – Clearly the market will decide the worth
2) Have the house appraised – Good idea, but will cost you cold, hard cash
3) Go with the price one purchased the house for

Obviously, option 1 will give you the most accurate value, but not the best way to find out if you want to stay in the house. The second will determine the worth, but cost you a few hundred bucks for each assessment. The 3rd is the most logical. If you determine the worth by any other means, it is not completely accurate and therefore you will either inflate or deflate your ‘true’ net worth.

As for cars, jewelry, home furnishings, and all the other stuff you can throw on there to make the number go up or down, I say to each their own (I like to keep it as minimal as possible, keeps us motivated)!

-Medicated

]]> By: Miguel http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31718 Miguel Wed, 11 Oct 2006 00:14:16 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31718 Reading some more of the comments confirms my thinking. You should include your home in your NW. The question is whether NW is the "right" measure for retirement planning. And I think the answer is "yes" and "no". I like samerwriters' "retirement worth" concept quite a bit. In my own situation, I am doing pretty well on NW, but concerned about being behind in schedule in my retirement worth, which is what I'm very focused on right now. Sure, I could someday convert my considerable equity in r.e. into cash, but I want to be in control of that timing. Later life planning is a complicated thing. I think you have to consider multiple measures - no one measurement is a catch all for PF health. And no simple plan can address all the possibilities. Reading some more of the comments confirms my thinking. You should include your home in your NW. The question is whether NW is the “right” measure for retirement planning. And I think the answer is “yes” and “no”. I like samerwriters’ “retirement worth” concept quite a bit. In my own situation, I am doing pretty well on NW, but concerned about being behind in schedule in my retirement worth, which is what I’m very focused on right now. Sure, I could someday convert my considerable equity in r.e. into cash, but I want to be in control of that timing. Later life planning is a complicated thing.

I think you have to consider multiple measures – no one measurement is a catch all for PF health. And no simple plan can address all the possibilities.

]]> By: Single Ma http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31717 Single Ma Wed, 11 Oct 2006 00:07:15 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31717 I didn't read through all of the comments so someone may have addressed this already. You include your car loan and the value of your car in your net worth, right? Why not your house? The way the question is worded assumes (I'm guessing) POSITIVE equity. Some people are upside down, especially with creative financing these days. Should one include their mortgage loan as a liability and the most recent value of their home as an asset when calculating net worth? YES! Whether those numbers inflate or deflate the final number doesn't matter, as long as they are current, accurate and complete. Even if I plan to live in the house forever, when I die, it's not being buried with me. It'll become part of my estate. Therefore, including both completes my total financial picture. I didn’t read through all of the comments so someone may have addressed this already.

You include your car loan and the value of your car in your net worth, right? Why not your house?

The way the question is worded assumes (I’m guessing) POSITIVE equity. Some people are upside down, especially with creative financing these days.

Should one include their mortgage loan as a liability and the most recent value of their home as an asset when calculating net worth? YES!

Whether those numbers inflate or deflate the final number doesn’t matter, as long as they are current, accurate and complete. Even if I plan to live in the house forever, when I die, it’s not being buried with me. It’ll become part of my estate. Therefore, including both completes my total financial picture.

]]> By: Gina http://allfinancialmatters.com/2006/10/10/jlps-question-of-the-day-net-worth/comment-page-1/#comment-31704 Gina Tue, 10 Oct 2006 22:25:19 +0000 http://allthingsfinancialblog.com/2006/10/10/jlps-question-of-the-day-net-worth/#comment-31704 I believe your primary residence should be included in your net worth. The first reason is because many people have loans against their house - if they aren't including their house in their net worth, how are they handling the loan? The second reason is that even if you plan on living in your house forever, having that house is still an asset that you can draw income from - reverse mortgage, home equity loan, home equity line of credit, renters, etc. I believe your primary residence should be included in your net worth. The first reason is because many people have loans against their house – if they aren’t including their house in their net worth, how are they handling the loan? The second reason is that even if you plan on living in your house forever, having that house is still an asset that you can draw income from – reverse mortgage, home equity loan, home equity line of credit, renters, etc.

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