Question for those of you to track your net worth

[Anonymous]

Anonymous wrote:I worked at Brown Brothers Harriman where actual super wealthy bank.

We only tracked “investable assets” or free money. Theory was that is all you can spend or invest. Under that metric most people in DCOM are poor.

Stocks, bonds, real estate, 401ks, IRAs, Gold, Cars all zero.

I recall one very very wealthy lady back in 1997 I was helping. She had 100 million in cash in 1997. She did have 900 million in stocks. Plus 100 million in bonds and REITs.

But the 100 million was her only number we cared about as that was only money she could spend or invest. Literally wanted cash in case business opportunity, mansion she could write did someone was selling a 50 million dollar house in Southampton in a distress sale for $40 million write a check or get in a pre IPO investment write a check.

What amazed me her onr billion was throwing off 100 million in dividends, interest, capital gains each year. So that 100 million built up quick

At least try to not be a fraud... haha.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Op here.

Thanks for the responses. Shouldn’t a net worth be what you could actually realize if you had to sell everything?

No. Of course not. That's absurd and makes no financial sense.

Different PP but a key reason I track my net worth is to get a sense of 1/ what would happen to our family if I was forced to retire tomorrow or be under employed for the foreseeable future (I am currently 45); 2/ what my kids would inherit if me and my DH died tomorrow.

So having an idea of roughly what would be converted in cash if we sold everything is not stupid to me. For example in both scenarios we probably wouldn’t keep our 1.5M house and we would go back to the starter house we kept and are currently renting.

[Anonymous]

Anonymous wrote:

Anonymous wrote:How do you deal with 401k assets? Do you include them in your net worth pre-tax or do you apply a factor to reduce their value to account for taxes when you ultimately withdraw?

Right now, I multiply my 401k assets by .65 to account for future taxes.

OP.. It's simple and practical to keep track of just your liquid net worth (exclude RE; include 529) for retirement planning at full value. All assets ( (except Roth IRAs) have a tax liability attached to them, unless managed, and it gets cumbersome if you start factoring that in. 65+ retirees get additional tax deductions and you could withdraw 100K+ and get away with paying zero to very low tax. Deal with taxes as an expense. If you need to spend, say $200K/yr in retirement, plan on a 20% overall tax on your withdrawal vs. reducing your assets by 35% and zero tax in retirement.

I know some pedantic idiot will come by to yap about my treatment of 529 and RE. Here's how to deal with it:

529 - Treat the balance as an asset and withdrawals as an expense. The money you have is yours, any balance left over is yours as well to gift your grandkids later, or just withdraw, pay penalty and spend. Excluding it makes no sense.

RE - You always need a roof over your head. If your have "excess RE" (live in a fully paid off $4M house but can easily downsize to a $1M house, have investment property, etc), by all means include that excess into your net worth. Otherwise ignore. Treat mortgage payments as an expense.

DP. I like this approach. I think I look at taxes now as an expense.

[Anonymous]

Track them at 100% because we are many years away from RMDs

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:How do you deal with 401k assets? Do you include them in your net worth pre-tax or do you apply a factor to reduce their value to account for taxes when you ultimately withdraw?

Right now, I multiply my 401k assets by .65 to account for future taxes.

OP.. It's simple and practical to keep track of just your liquid net worth (exclude RE; include 529) for retirement planning at full value. All assets ( (except Roth IRAs) have a tax liability attached to them, unless managed, and it gets cumbersome if you start factoring that in. 65+ retirees get additional tax deductions and you could withdraw 100K+ and get away with paying zero to very low tax. Deal with taxes as an expense. If you need to spend, say $200K/yr in retirement, plan on a 20% overall tax on your withdrawal vs. reducing your assets by 35% and zero tax in retirement.

I know some pedantic idiot will come by to yap about my treatment of 529 and RE. Here's how to deal with it:

529 - Treat the balance as an asset and withdrawals as an expense. The money you have is yours, any balance left over is yours as well to gift your grandkids later, or just withdraw, pay penalty and spend. Excluding it makes no sense.

RE - You always need a roof over your head. If your have "excess RE" (live in a fully paid off $4M house but can easily downsize to a $1M house, have investment property, etc), by all means include that excess into your net worth. Otherwise ignore. Treat mortgage payments as an expense.

Except your full home you live in is part of your NW. You could sell that $1M and rent or move to a much smaller place. You have choices

Absolutely! That was just an example. If that threshold is $200K for you, then treat the excess above that as part of your net worth.