Do you include your home equity in net worth ?

[Anonymous]

Anonymous wrote:It won't make any difference to my net worth, OP.

The inclusion of home equity usually makes a difference for the middle class. Poorer people might not be home-owners, and wealthy people have many assets and the equity on one home isn't going to change anything.

Cut the crap - someone with an $8M net worth, including a $2M home, is wealthy but they would sure as hell feel it if their paid-off home were taken away.

Then, their $6M in other assets would have to not only pay for living expenses but rent on a $2M house. I can't believe people here are so dense as to not understand the concept of imputed rent.

[Anonymous]

Anonymous wrote:I calculate different levels of net worth. Total net worth includes the value of my home and my son's 529/college fund, even though neither of these will contribute to my retirement income (and the latter will be gone in 5 years). Then I calculate liquid net worth, which is everything I have in my bank/investment accounts. But since I'm self-employed, this always includes a large cash buffer to get me through lean months, unexpected expenses, and tax bills. And finally there's my invested net worth, which is what I plug into retirement calculators to see what I'll have to live on once retired.

Probably overkill, but I find it helpful.

I posted something similar. Different flavors of net worth are the only measures that are meaningful.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It won't make any difference to my net worth, OP.

The inclusion of home equity usually makes a difference for the middle class. Poorer people might not be home-owners, and wealthy people have many assets and the equity on one home isn't going to change anything.

Cut the crap - someone with an $8M net worth, including a $2M home, is wealthy but they would sure as hell feel it if their paid-off home were taken away.

Then, their $6M in other assets would have to not only pay for living expenses but rent on a $2M house. I can't believe people here are so dense as to not understand the concept of imputed rent.

PP you replied to. So... you're disputing my threshold between middle class and wealthy? And calling me dense?

OK. Seems like such a small reason to get super aggressive about. Interesting that you feel personally affronted by this discussion.

[Anonymous]

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Anonymous wrote:What do all of you people use your "net worth" calculation for?

I look at how it changes year over year to see how we are progressing and to set financial goals. It helps to see when we need to double down on savings or can spend some money on home improvement or other big ticket items. I also use the process to take a look at the weightings in various things, although our financial advisor does that as well.

I see some people on here saying they do it monthly. I really only do it in January, although occasionally I will do a mid year update.

If you download an app like personal capital/empower and connect your financial stuff to it, you don’t have to track anything, ever. It does all the work for you. You can literally push a button every single day and see what you’re worth that day.

Yep.. Until someone figures out how to hack those apps and harvest your credentials.

DP: I also think for many of us that the work is part of the process, when you do a review you are putting yourself in the mindset of thinking about where you are at and where you want to go. Taking the time to input everything helps you stay in that mental space a bit and earmark it as something special. I used personal capital back when it was that (I removed my account when they changed hands as I did have security concerns too) and it was great to see it all updated but I found I kind of drifted away from being on top of my finances a bit compared to when I did a monthly excel update and a 2x a year review with my spouse. I always knew where I was at financially, but the constant nature of it made me less reflective/planful.

Did/Does Empower allow you to track expenses and not keep nagging you about investment accounts? I just a free (web-based or otherwise) app that can connect to my credit card accounts and classify my expenses for me on demand. Don't need them to also track assets/investments.

Yes, it absolutely does and that is primarily what I use it for. There is very little nagging involved. In fact, I can’t remember the last time I got any kind of solicitation from them.

[Anonymous]

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Anonymous wrote:I understand academically it’s part of our net worth. But when we discuss our “number” (to retire) we don’t include it because we need a place to live and it’s also not throwing off income.

This.

OP - I don't include the home equity of my primary residence in my number (aka net worth) for the exact reason stated above. Academically, the definition of Net Worth does include all your assets less all your liabilities, but life is not an academic exercise and you need to do what makes sense to you.

Including the value of your my primary home's equity gives you a false sense of security that you have more than what you really can realistically tap into. Not including is a more conservative and practical way to track 'net worth'.

At the end of the day, do what makes sense to you. Follow the text book or follow common sense.

ARGHH, CALCULATE WHATEVER THE HELL YOU WANT, BUT WORDS HAVE MEANINGS — NET WORTH INCLUDES HOME EQUITY! This is such a pet peeve of mine.

Yes, I totally agree. It’s like people say they “retired“ when they voluntarily switch from a high to low paying job or elect to stay home with kids. Just stop already. You didn’t retire.

The definition of net worth is the value of your assets minus the value of your liabilities. Your home is an asset. End of story.

I suppose I agree, although I can't see getting worked up about it. Not one of us includes everything in their net worth calculations. Most people don't include their cars. I'd guess no one includes the cash in their pocket, the value of the unopened bottle of wine they just purchased, and hundreds of other "assets."

So, everyone (including the very vehement PPs) omits some things from net worth calculations for a whole variety of reasons. Home equity is just an extension of that.

No, when it comes to financial planning, the value of your home is more important than an unopened bottle of wine. Nice try though.

[Anonymous]

This is so stupid and shouldn't be a 5 page discussion.

Networth is simply assets minus liabilities, that's it. You could even include the value of a car, artwork, and diamonds.

Of course your home value counts towards it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I understand academically it’s part of our net worth. But when we discuss our “number” (to retire) we don’t include it because we need a place to live and it’s also not throwing off income.

This.

OP - I don't include the home equity of my primary residence in my number (aka net worth) for the exact reason stated above. Academically, the definition of Net Worth does include all your assets less all your liabilities, but life is not an academic exercise and you need to do what makes sense to you.

Including the value of your my primary home's equity gives you a false sense of security that you have more than what you really can realistically tap into. Not including is a more conservative and practical way to track 'net worth'.

At the end of the day, do what makes sense to you. Follow the text book or follow common sense.

ARGHH, CALCULATE WHATEVER THE HELL YOU WANT, BUT WORDS HAVE MEANINGS — NET WORTH INCLUDES HOME EQUITY! This is such a pet peeve of mine.

Yes, I totally agree. It’s like people say they “retired“ when they voluntarily switch from a high to low paying job or elect to stay home with kids. Just stop already. You didn’t retire.

The definition of net worth is the value of your assets minus the value of your liabilities. Your home is an asset. End of story.

Totally agree. My coworker "retired" and works 9 of 10 days every 2 weeks. That's more than I ever worked. However she used to work 2 jobs.

[Anonymous]

Anonymous wrote:Home equity is BY FAR the least important (though NOT smallest) part of my net worth. It’s not far from fool’s gold.

You must have a cheap home.
My home is 3.5 million.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Home equity is BY FAR the least important (though NOT smallest) part of my net worth. It’s not far from fool’s gold.

You must have a cheap home.
My home is 3.5 million.

Not at all. My home isn’t that far off…and nobody cares how much your home is worth. Sell it if you want to realize that value. Until then, it’s essentially worth $0 with respect to your day-to-day.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What do all of you people use your "net worth" calculation for?

I look at how it changes year over year to see how we are progressing and to set financial goals. It helps to see when we need to double down on savings or can spend some money on home improvement or other big ticket items. I also use the process to take a look at the weightings in various things, although our financial advisor does that as well.

I see some people on here saying they do it monthly. I really only do it in January, although occasionally I will do a mid year update.

And how does your home equity impact those decisions.

It shows what the total value of my assets are and helps to think about how we might change that in retirement. We will sell one house for sure but not sure if we will rent or buy something smaller. And ultimately we will probably live in one place rather than split time between two. It has also triggered the need to do something about estate planning because, as I noted elsewhere, we are now close to the tax exempt limit (and our state limit is a fraction of that) and that amount sunsets in 2025 so will likely drop at that point.

I also liked to see the progress we made on paying off the mortgages, although now that they are paid off that's no longer a factor.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What do all of you people use your "net worth" calculation for?

I look at how it changes year over year to see how we are progressing and to set financial goals. It helps to see when we need to double down on savings or can spend some money on home improvement or other big ticket items. I also use the process to take a look at the weightings in various things, although our financial advisor does that as well.

I see some people on here saying they do it monthly. I really only do it in January, although occasionally I will do a mid year update.

And how does your home equity impact those decisions.

It shows what the total value of my assets are and helps to think about how we might change that in retirement. We will sell one house for sure but not sure if we will rent or buy something smaller. And ultimately we will probably live in one place rather than split time between two. It has also triggered the need to do something about estate planning because, as I noted elsewhere, we are now close to the tax exempt limit (and our state limit is a fraction of that) and that amount sunsets in 2025 so will likely drop at that point.

I also liked to see the progress we made on paying off the mortgages, although now that they are paid off that's no longer a factor.

Home equity can be a very critical part of your net worth when doing estate planning if you are close to the exemption threshold. I am pretty estate focused, so I think of net worth in terms of what my assets are should I drop dead.

[Anonymous]

Anonymous wrote:Home equity is BY FAR the least important (though NOT smallest) part of my net worth. It’s not far from fool’s gold.

Why? Explain.

[Anonymous]

As was mentioned early on, NW includes home, cars, valuables (jewelry, as an example, art)....anything you can sell.

We don't count anything other than investments, 401ks, bonds, etc, + home. But we focus on what was referred to here as the walk-away number. (We just say we need X + house to retire.)

In our case, our home is one level with a small separate suite for a caretaker. Our hope is to age in place. To do this, we will need to be able to afford to pay for care in-home. So our home, with any luck, only provides value to our heirs. If that plan doesn't work out, then yes, we could sell to use the money to move into assisted living or nursing. But we don't want this to be a must-situation because we need the money out of the house. (Or at that age need to figure out reverse mortgage, or something.) Basically, we don't want to ever need the money out of the house.

TL;DR While the house is technically part of NW, we don't include it in our financial planning.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Home equity is BY FAR the least important (though NOT smallest) part of my net worth. It’s not far from fool’s gold.

Why? Explain.

Until I sell, it’s not going to pay for one bill or meal.

[Anonymous]

I owe more on my mortgage than I have in equity, so it would affect my NW negatively if I factored it in… but I don’t.