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How to Calculate Your Net Worth (The Right Way)How to Calculate Your Net Worth (The Right Way)
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The kids are all jacked up on mt dew!
I would rather include the current market value of my home vs. including cars, furniture, etc. since that stuff is usually just tanking in value. This stuff, to me, just serves to artificially inflate your net worth in favor of your ego vs. real world usability. As long as your house isn't a dump, you could realistically sell it at low market value fairly quickly in most cases. So why not include it in your NW statement?
If the contents of your home changes significantly over a few years, you'll also want to consider if you still have the right amount of insurance coverage (people tend to forget about this as their material assets change over time). Those things may not be part of your calculated net worth, but if disaster strikes, you will be personally impacted (loss of handbags, collections, furniture, etc.). When I am looking at net worth, I always remind myself that my home and cars are not assets that I am planning to part with to fund my life because I need those things. So, liquid assets or assets that will be liquid at retirement (cash, investments) are what I consider to actually be the important number for my household.
I count my house at market value,
car, savings and investments. If I have a home worth $500k (no mortgage) that adds $500k to my net worth. I get there would be real estate fees and selling prices fluctuate but by not including anything else in my networth like jewelry, personal property, etc, that counterbalances the impact
IMHO lots of people include too much “fluff” to pump the number up. I include my home at purchase price, savings, investments, and subtract any debts. I don’t include, jewelry, vehicles (I would if I had a collector car/watch etc.) home furnishings, tools, or anything else. I’ve also seen where some say to include the value of a college 529. I don’t include this either because I look at it as my daughter’s money. I think the more important number is the amount I have invested. I don’t want to be a millionaire with $600k of my net worth in my home. This is my opinion, it’s worth what you paid for it.
With my house I do the market value minus about 10 percent for commissions and fees
I don’t include my primary residence. We all need a roof.
Would you count large luxury items like a grand piano?
At the end of the day, you're only deceiving yourself if you include things that inaccurately inflate your net worth. To me, if it's not currency and you have no plans of selling it at a profit, it shouldn't count toward your net worth.
I started a Franchise business a year ago. Value of the business isn’t very high at the moment because it’s a new startup.
Should I include this in my net worth statement? If so, how should I factor it in?
Juan
The most important thing is to be consistent with what you count. If you don't count designer bags this year, but do count them next year, the picture you're painting won't reflect reality.
I just wouldn't even include anything that isn't real estate, vehicles, cash, or investments.
Jewelery is easy to buy, hard to sell. Collectible items like that only really hold their value when people have money, when people have money it can easily just drop in value. Additionally, if technology makes it easier to create jewelry in the future it could easily also drop in value as it won't be as rare.
Mary has a little lamb.
There are certain collectibles/luxury goods that I include my net worth.
I have a lot of (please don't cringe) Pokemon cards and because I sell them pretty frequently and understand this niche market, I include them in my net worth calculations and I discount them by about 50% so I have a conservative enough buffer for those that I sell (Ebay fees, market conditions, shipping costs, etc). I don't have enough in terms of hand bags to include but there's quite a few luxury brands like Birken that maintain value over time. I agree that net worth is like a snowflake and you should personalize to include what matters to you, and what your risk tolerance is.
To me, net worth is a long-term calculation rather than a snapshot. As such, counting depreciating assets such as vehicles into our net worth violates the 11th commandment…thou shall not bullshit thyself. Likewise, my investments are calculated on their book value (GDP/market value) rather than what their current dollar value indicates. This naturally creates a far more conservative and much less impressive value than what's showing on a statement, but it is nevertheless far more realistic.