Reply to FYI: Don't include home equity in net worth

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]Net Worth = investments that make money like saving accounts, bonds, stocks, brokerage and rental property (just the net income).

Here's why. NW is a calculation of assets that are making money for you. Your house is a cost center. Tax, repairs, ect. Even if you have equity, it still doesn't count because you don't really know what you'll earn until you get that check on closing day.

Feel free to argue all you want but it's true for financial planning purposes.[/quote]

I thought there were a couple of pedantic types here but looks like we have a village! The 'official' or textbook definition of net worth includes all assets less all liabilities. For all practical purposes it's OK to exclude primary residence with a couple of caveats, or have a pointless 'big picture' net worth that includes primary residence and a 'real-world' net worth which excludes primary residence. The reason being you'll always need a roof over your head and at the current moment and what seems likely in the foreseeable future, your replacement 'downsized' how will cost about as much as your primary residence.

Caveats: - Include equity if it's far in excess of what you really need. For instance, if you live in a $5M house and can sell that and easily live in a $1mil home, the excess can be counted as part of your net worth (assume all equity) since it's money you can release for spending should the need arise. This also includes situations where 'you know', in the future, you will be selling your home for $X and will be buying a smaller home worth $Y in Wyoming or Timbuktu (Wish I had that crystal ball). $X - $Y can be included as part of your net worth provided said crystal ball is in your possession. 
- Include investment or vacation real estate equity.
- If you do, don't forget to offset with associated liabilities.

I personally don't include primary residence equity in my net worth (yes, net worth) because I don't need to. If you do have to include that component to feel good about your net worth, by all means, do so. 
[/quote]

This same idiotic drivel pops up every 6 months or so. Net worth has a definition. You don't get to make up a new definition. And your reasoning is weak (particularly since you assume that owning a house is the only means of maintaining shelter). [/quote]

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