Anonymous wrote: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.

Anonymous wrote:I'm the one in "Net Worth Jail," a few comments above. While your home equity is an asset and officially counts towards net worth, I don't count it because I have no plans to ever draw money out of my house. I'm not going to borrow against it, use it as an investment property, or sell the property to increase my cash flow. The only thing I might do is sell it and invest the money in another primary residence which will be around the same or slightly higher price.

I see my home more as an avoidance of a cost than an asset. Without the mortgage, I will spend $1,500 a month on the condo fees, HOA, insurance, maintenance and repairs. To rent a similar place, it would cost $2,700 a month, so I've reduced my monthly expenses by $1,200 a month by owning.

Anonymous wrote:I'm the one in "Net Worth Jail," a few comments above. While your home equity is an asset and officially counts towards net worth, I don't count it because I have no plans to ever draw money out of my house. I'm not going to borrow against it, use it as an investment property, or sell the property to increase my cash flow. The only thing I might do is sell it and invest the money in another primary residence which will be around the same or slightly higher price.

I see my home more as an avoidance of a cost than an asset. Without the mortgage, I will spend $1,500 a month on the condo fees, HOA, insurance, maintenance and repairs. To rent a similar place, it would cost $2,700 a month, so I've reduced my monthly expenses by $1,200 a month by owning.

Anonymous wrote:

Anonymous wrote: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.

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.

Anonymous wrote:People, listen!
“Net worth” has nothing to do with retirement.
Net worth = your assets - your liabilities

If you are planning for retirement, you want to look at your income generating assets. Don’t call it net worth.
It’s called “income generating assets”, and it doesn’t include your primary home.

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.

Anonymous wrote: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.

Anonymous wrote: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.

Anonymous wrote:

Anonymous wrote:I count my home equity as part of my big-picture net worth, but I separately calculate assets that make money for me in retirement, and that calculation excludes home equity and 529 plans. One nice thing about home equity is you can sell your house and use it for end-of-life care someday, so you don't have to worry that if your retirement assets only generate $200k annually but you think you'll need $300k annually in the last few years for quality assisted living.

529s are kind of a gray area to me.

I'm glad most here have rejected the OP's stupid "your house doesn't count" argument - and frankly, I'm surprised because I had the impression that this asinine view had more support here. However, 529s are a little different. They absolutely count as part of your net worth when following the strict definition. But they are essentially just pre-paying an expense and for a good which has no resale value.

Anonymous wrote:I don't count my fully paid off $500K condo in my net worth because even if I sold it, I'm likely to spend at least that much on another property to live in.

Anonymous wrote:I count my home equity as part of my big-picture net worth, but I separately calculate assets that make money for me in retirement, and that calculation excludes home equity and 529 plans. One nice thing about home equity is you can sell your house and use it for end-of-life care someday, so you don't have to worry that if your retirement assets only generate $200k annually but you think you'll need $300k annually in the last few years for quality assisted living.