FYI: Don't include home equity in net worth

[Anonymous]

Anonymous wrote:Why is Net Worth value helpful?

We’ve done financial planning with and now without a CFP and never once has net worth been brought up.

They may not have used the term, but if your planning included estate planning, the value of your house certainly matters in terms of state and federal estate taxes and what your heirs may inherit.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Why is Net Worth value helpful?

We’ve done financial planning with and now without a CFP and never once has net worth been brought up.

They may not have used the term, but if your planning included estate planning, the value of your house certainly matters in terms of state and federal estate taxes and what your heirs may inherit.

That was helpful. Thank you!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This thread really just underscores the point that net worth is a fundamentally meaningless measure for most people — personally, I'd like to be able to plan not to have to sell my house in retirement (for instance), so I want my net worth to be whatever I need to retire on without calculating home equity at all.

Since it's also not a measure you ever really have to report to any official body in any way, it doesn't really matter whether you do or don't count your home equity in your planning.

It does seem pretty well beyond dispute that the definition of net worth includes your home equity. But it's also true that the value of your home really only exists on paper until you sell it, so it's inherently a bit arbitrary.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

I can’t quickly and easily sell my business either. But that doesn’t mean it isn’t part of my net worth. It just means it isn’t liquid.

[Anonymous]

Anonymous wrote:

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Anonymous wrote:

Anonymous wrote:I think OP phrased it poorly. It’s not about asset making income or not, it’s about having to allocate the asset for personal consumption. You cannot be homeless. But this idea of OP still doesn’t hold because there is not definition of what shelter must be and how much it must cost. You absolutely should count your equity in a house you live in because you CAN sell it and exchange it for something less expensive or rent something instead. In this case this equity becomes a part of your NW in the definition OP wants to follow, as it is now investable. Investment income from this may go towards covering your living costs in a rental with the rest saved/reinvested. But according to the definition it is a part of your asset portfolio capable of earning income.

i also think OP and others who agree don’t really have much net worth to begin with and can’t see that this board skews wealthy. Many people have 2nd homes and have investment properties. People like myself purchased an investment in our early 40s with the intent for it to be a retirement home so our primary home in indeed money we will be able to cash in tax free and not need to use for another home. My retirement home is currently being paid down by renters. And if I decide I don’t want to live in that home? Who cares, I will 1031 exchange it into something else, but I’m definitely not using the funds from my primary home. Thats hitting my pocket. I’m certainly not alone in this.

Not sure if you read all the posts but several posters clarified that it's equity in a 'normal' primary residence that should be excluded and not investment property. I'm one of those that lives in a normal house (i.e. not a $5M house while I can easily live in a $1M one) and I don't include the equity in my assets for the purpose of retirement planning. The one rental I own, I certainly do.
Also, I think it's the relatively poor that clamor to include their primary home equity in their net worth so they appear rich. Someone whose home equity is less than 10% of their total worth won't need to.

The problem with you and OP is that you are misunderstanding and misusing the term “Net Worth”.
We understand what you are trying to define: Assets that you plan to draw income from to fund your retirement.

Nobody will disagree with you if you say, I’m not including home equity in the assets I plan to use to fund my retirement. Someone else may even decide to not include money in their brokerage account if they won’t use it. Their choice.

Everyone is free to choose which assets they want to exclude from their retirement planning.
But everyone doesn’t get to redefine Net Worth to their liking.

Money you plan to use to fund retirement IS NOT the same as your net worth.

Chill dude! Get your head out of your pedantic a**. Everyone is aware of textbook definitions. This is not a classroom discussion and goes beyond that. I use net worth to exclude primary residence and will continue to do so in future discussions on here because it makes sense to ME. Don't like it, don't use it. GTFO!

Words have meanings. If you decide they mean something other than the understood definition you are the one that is wrong. Not sure why you’re so worked up about that.

Me worked up? You are the one dictating what they should call their collection of assets. Get a life.

You're a f cking troll. Shut the f ck up.

You first, biat*h!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This thread really just underscores the point that net worth is a fundamentally meaningless measure for most people — personally, I'd like to be able to plan not to have to sell my house in retirement (for instance), so I want my net worth to be whatever I need to retire on without calculating home equity at all.

Since it's also not a measure you ever really have to report to any official body in any way, it doesn't really matter whether you do or don't count your home equity in your planning.

It does seem pretty well beyond dispute that the definition of net worth includes your home equity. But it's also true that the value of your home really only exists on paper until you sell it, so it's inherently a bit arbitrary.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

Whether or not an asset is liquid doesn't change whether you should include it in your net worth.

+1000

Net worth is a fixed definition.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This thread really just underscores the point that net worth is a fundamentally meaningless measure for most people — personally, I'd like to be able to plan not to have to sell my house in retirement (for instance), so I want my net worth to be whatever I need to retire on without calculating home equity at all.

Since it's also not a measure you ever really have to report to any official body in any way, it doesn't really matter whether you do or don't count your home equity in your planning.

It does seem pretty well beyond dispute that the definition of net worth includes your home equity. But it's also true that the value of your home really only exists on paper until you sell it, so it's inherently a bit arbitrary.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

Whether or not an asset is liquid doesn't change whether you should include it in your net worth.

"Should" is sort of a meaningless concept with net worth, since it's not like you ever have to report that to anyone. If you want to count your net worth as only half of what it actually is, so what?

I agree with various posters about the DEFINITION of net worth, which is just the sum total of your assets minus your liabilities. I also agree with various posters who say they find it useful to think of their overall financial picture using different metrics.

Exactly!

For example, you will always need someplace to live and some mode of transportation. However, you can always sell that $2M home and choose to rent. You can also rent/own in a city with good public transportation and choose to sell your vehicle (or one of them) and rely on public transportation. That is up to your individual situation. But fact is you do NOT have to own a home or a car.

[Anonymous]

Anonymous wrote:Why is Net Worth value helpful?

We’ve done financial planning with and now without a CFP and never once has net worth been brought up.

As you approach higher NW, it is important for estate planning.

I live in a state with no state income taxes. That means our State estate taxes start at a much lower level than federal ($11M per person). So if we don't want our kids/the estate having to pay out 14-20% on everything over 1M (per person), it behooves us to plan. Same for federal (we are just over the current limits already, and those will sunset In 2025 or 2026). So it's essential to plan for avoiding 20-60%+ of the estate to go to "taxes". All of which is completely legally avoidable with some planning.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This thread really just underscores the point that net worth is a fundamentally meaningless measure for most people — personally, I'd like to be able to plan not to have to sell my house in retirement (for instance), so I want my net worth to be whatever I need to retire on without calculating home equity at all.

Since it's also not a measure you ever really have to report to any official body in any way, it doesn't really matter whether you do or don't count your home equity in your planning.

It does seem pretty well beyond dispute that the definition of net worth includes your home equity. But it's also true that the value of your home really only exists on paper until you sell it, so it's inherently a bit arbitrary.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

I can’t quickly and easily sell my business either. But that doesn’t mean it isn’t part of my net worth. It just means it isn’t liquid.

Yup, and when you die, someone will inherit it and it will have a value for tax and many other purposes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This thread really just underscores the point that net worth is a fundamentally meaningless measure for most people — personally, I'd like to be able to plan not to have to sell my house in retirement (for instance), so I want my net worth to be whatever I need to retire on without calculating home equity at all.

Since it's also not a measure you ever really have to report to any official body in any way, it doesn't really matter whether you do or don't count your home equity in your planning.

It does seem pretty well beyond dispute that the definition of net worth includes your home equity. But it's also true that the value of your home really only exists on paper until you sell it, so it's inherently a bit arbitrary.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

so what’s your point?

[Anonymous]

Anonymous wrote:OP is objectively correct. It is not a matter of perspective or individualized. You can google this fact.

So…google it and show us?

[Anonymous]

This post is nonsensical.

[Anonymous]

Anonymous wrote:OP is objectively correct. It is not a matter of perspective or individualized. You can google this fact.

If you think OP is “objectively correct” then “I do not think it means what you think it means.”

[Anonymous]

Anonymous wrote:

Anonymous wrote:Why is Net Worth value helpful?

We’ve done financial planning with and now without a CFP and never once has net worth been brought up.

As you approach higher NW, it is important for estate planning.

I live in a state with no state income taxes. That means our State estate taxes start at a much lower level than federal ($11M per person). So if we don't want our kids/the estate having to pay out 14-20% on everything over 1M (per person), it behooves us to plan. Same for federal (we are just over the current limits already, and those will sunset In 2025 or 2026). So it's essential to plan for avoiding 20-60%+ of the estate to go to "taxes". All of which is completely legally avoidable with some planning.

+1.

There are also numerous ways to monetize illiquid assets. Presumably one would want to have an idea of what those assets are worth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This thread really just underscores the point that net worth is a fundamentally meaningless measure for most people — personally, I'd like to be able to plan not to have to sell my house in retirement (for instance), so I want my net worth to be whatever I need to retire on without calculating home equity at all.

Since it's also not a measure you ever really have to report to any official body in any way, it doesn't really matter whether you do or don't count your home equity in your planning.

It does seem pretty well beyond dispute that the definition of net worth includes your home equity. But it's also true that the value of your home really only exists on paper until you sell it, so it's inherently a bit arbitrary.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

so what’s your point?

I was responding here specifically to a PP who said home values and 401(k) values were both just estimates until they were sold. My point was that that isn’t really the case with a 401(k).

[Anonymous]

to simplify, don't' include your house equity in your retirement plan if you don't plan on downsizing (cost wise) or have multiple homes and you will sell one and pocket the cash. Other than that, it is absolutely part of your net worth. What a bizarre thread.