When tracking one’s net worth, whether publicly or privately, I don’t think there is any one “correct” way to do it. People should measure it however they like in order to achieve useful information out of it. Accordingly, as we get closer to reaching our mid-term goal, I am considering changing how I calculate our net worth. After the purchase of our house, our main goal will mainly be to accumulate enough assets to provide income for the future. Everything that doesn’t help us do this, shouldn’t I just ignore it?
Dropping the value of our cars
Many people ask why I include the value of one of ours car in our net worth, while ignoring the other. It’s mostly legacy reasons. When I first started tracking our balances, I already owned one car free and clear and ignored it from the beginning. When I purchased our second car after getting married, I was faced with the choice of either taking an $8,000 hit immediately, or simply including the Blue Book value of the car in the assets column. I chose the latter because I felt it would help me better track the month-to-month differences.
Since cars are really just a depreciating asset, I’m going to stop tracking the values of them completely.
Ignoring any home equity and mortgage debt
I’ve explored a bit whether owning your primary home should be considered an investment, and also explained how our house is going to be a long-term commitment. Along the lines of this, I’m starting to think that I should just ignore any equity accumulation in my net worth charts and just treat our future mortgage payment the same as our current rent payment – an expense for housing. Since we’ll be living in this home, it won’t generate any cashflow, so why include it?
Perhaps one day I’ll be able to cash out the equity or have the mortgage paid off and be able to live rent-free, but in the meantime it just seems to be a bit of a distraction. This way, I can ignore any short-term increases or decreases in the market value of the house.
What do you think? Personally, I don’t think this will make much difference either way, it’s just a slight change in measurement to help guide our focus.