Considering Changes To How I Calculate Our Net Worth

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.


  1. Bingo! I seem to be on the losing side of this arguement but agree 100% — cars and primary residence shouldn’t be part of your net worth goal — they give the illusion of wealth when they are really not.

    I currently track my primary residence because I am converting it to a rental property so its really ultimately an investment. When I buy my real primary residence, it won’t be a part of my $2 million net worth goal.

  2. A couple of thoughts…I apologize for the length of the comment in advance. 🙂

    I actually disagree. I haven’t put as much thought into this as some, but look at it this way… Let’s say you and your wife were to pass on at some point and you had beneficiaries to inherit whatever assets/liabilities you had. Is the value of your house and cars worth nothing as an asset and not included in part of your overall net worth? Absolutely not! They can both be sold by the beneficiaries and there would hopefully be equity in both.

    So while you may not look at your cars and home as investments that can help you in your lifetime, they do add value to what your net worth is.

    Now that being said it sounds like you are looking to make your net worth a vehicle that shows how ready you are for retirement and whether your assets can cover your liabilities. There’s nothing wrong with that and someday you will have to look at that, but even in this case let’s say you got in some financial trouble at some point later in life. Could you not sell your house, buy a cheaper one, and have converted the asset that is your house into a liquid asset? So why wouldn’t that value of that asset be included in your net worth?

  3. I really believe there’s value in calculating it both ways. It’s not like it’s difficult to do and it gives important information. Including mortgage and home value give the overall picture while leaving them out gives an indication of ‘liquid’ assets. Even that may be too simplistic, though, and I actually do three calculations – with home, without home, without retirement accounts. Clearly, as nickel says, I’m not going to sell my home for cash and neither am I going to liquidate my 401(k).

  4. I think there’s value in calculating net worth both ways. By including home value and mortgage, you get the ‘big picture.’ When you exclude them, it gives a better indication of ‘liquid’ or ‘true’ assets. I actually calculate it three ways – with home, without home, without retirement accounts. Clearly I’m not going to sell my house for cash. Similarly, I’m not going to liquidate my 401(k).

  5. 2million, how does tracking your primary residence give the illusion of great wealth if you have a mortgage and possibly a home equity loan along with it? I include the value of my home as determined by the property appraiser in my net worth calculations since it is always much less than the market value.

  6. I really only keep track of net investable assets (so no cars, house/mortgage, or other belongings). If we had any investment properties, I’d include those, but we don’t.

  7. Tom, I think what 2million is getting at is that he wouldn’t be willing to sell his primary residence to access the money, so adding that value to his net worth would be an illusion of sorts. Sure, when you die it increases the value of your estate. But if you’re tracking what you need on hand for “financial freedom,” and you vision of that doesn’t include selling your car(s) and/or house, then you might be better off by not including those things in your number.

  8. Mr. Bee says:

    I also agree with not considering home and car in my Net Worth calculations. Here are several things I remove from my Net Worth calculations:
    – Any assets such as home and cars.
    – Any investment that is part not for my retirement, such as 529 and ESA account.

    Another way I would suggest is to do two different Net Worth calculations. One with your primary residence and cars and one without. Public companies do it all the time with Pro-Forma income report.

  9. Joseph Sangl says:

    It sounds reasonable to me!

    If someday you converted the house to a rental, I suppose you would roll it back into the equation.

  10. stamp01 says:

    i’ve never posted here before, but i do read everyday when i get to work.

    i personally think that if the value of your vehicle or resident constitutes a significant portion of your net worth, there is no problem with including it in such. i am in my early 20’s and the value of my car (less the little bit left that i owe), is about 1/4th of my net worth. if for some reason i needed money tomorrow, i could seel it, pay off the few grand owed, and be left with ~$15k that i didn’t have in my pocket before. i find it helpful to track this (and the depreciating value assocaited), so if -god forbid- i needed to do this, i would know just how much it would produce.

    as far as the residence is concerned, i would personally look at it both ways. perhaps create a net worth chart monthly to track liquid assets and maybe quarterly (or even yearly) to track non-liquid assets. this could certainly include your cars as well (for some, could include even expensive jewlery, art work, boats, atv’s,….). i personally believe that a house is a terrific way to automatically save money – and how could you not include that in a net worth? If someone buys a $500k house and over 30 years pays it off, if they decide to sell and down size to say a $250k house, they didn’t really make money, they just cashed out. so although you don’t want to scew your numbers now but including the money paid towards a mortgage, consider a few years from now if you cash out. it could scew the numbers significantly in the possitive direction.

  11. When I calculate my net worth every month, I never included anything related to house or cars, either as asset or liability just because I don’t know the fair market value of them. Unless you have a very accurate estimate of them from month to month, including them is likely to inflate the number. Therefore, I just don’t use them.

  12. Nate Finch says:

    I agree 100%. Cars definitely should not be included in net worth because they depreciate and in general, there’s not going to be a time when you sell a car and don’t replace it with something. Consider it an operating expense of life.

    The same goes to a lesser extent for your primary residence. You’re not going to sell the house to get the equity out of it and move into an apartment when you retire (at least, most people won’t), so you can’t count that towards the net worth you’re looking to build to retire on…. after all, isn’t that what we’re really trying to calculate – how much money we’ll have when we stop working?

    Sure, you can sell and move to a place with lower housing costs, but you really shouldn’t count on being able to do that. With older age comes less tolerance for long distance travel, plus the desire to be near kids and grandkids. If you don’t plan for it, you won’t be hurting if it can’t happen.

  13. I would not call this new formula “Net Worth” if you are using this to determine your “Financial Freedom.” I see Net Worth as if you sold everything and paid off what you could, how much would you have left. The way you describe Financial Freedom are only liquid assets and what will provide income for the future.

  14. Yeah I agree your home’s value really has little place in your net worth. First off the only time you can get an accurate value of your home is when you sell it. The price can go up and down a fair amount and you are just taking a wild ass guess ass to what your home?s value is. I tend to be pretty conservative with all of my projections and while I can pretty safely say I have $30k-$40k of home equity built up you will never see it on any of my financial statements. I?ll always need a place to live and yes homes do appreciate, but so do all the other homes you want to move into. My theory is if my house went up in value 20% in the time I lived in it and I want to sell it and move somewhere else – my new house is probably going to cost 20% or more than it would have when I purchased my last house so my net gain is $0 (I?d actually say it?s probably going to be a loss when the home selling fees are added up). Only time your house pays dividends is when you downgrade. So in my humble opinion your primary residence has no place in your net worth statement until you are retirement age and plan to downgrade your residence and even then you can only count the difference between the place you will be moving into and your current residence.

    Most of the above taken from

  15. I do not include the market value of my condo nor my accumulated equity in my net worth.

    First, I consider property to be too illiquid to truly count toward my assets. It’s somewhat similar to the clothing you own…it’s not that easy to liquidate your clothes, nor can you really anticipate how much you can get for it.

    Second, I consider the equity permanently sunk. I will be rolling up the equity into newer/bigger homes for the rest of my life, so I will never really have access to it. You have to live somewhere, right? Unless I switch to renting, I will never see that money again.

    Real estate is a strange animal. It’s easy to exclude some assets from net worth such as clothes and cars because they are depreciating and therefore will eventually be worth close to nothing. Property, however, appreciates. To me, this small difference is what confuses the issue of whether we should count it or not. But when you take into account my first two points, it becomes clear that a house should probably not be counted toward net worth.

  16. To offset the mortgage I have on my house, I’ve included my house in my net worth calculations. I’ve not taken into consideration any change in market value of my house but I have included the cost of any renovations I’ve done and added it to the house value. When you do capital improvements like renovating a bathroom or kitchen completely or installing new windows/carpet, you either included the improvements as added value to the house or your net worth goes down.

  17. Christopher says:

    What about future earning potential or income producing assets?

    In my mind, net worth is your total worth discounted back to the present. Think annuities but in reverse. If I can produce x-amount of income in the future, or better yet … if an asset I own can produce x-amount of income (like a rental property), then I can sell that asset for the total discounted revenue it would give me in perpetuity. If you want to be thorough, then you might want to try this approach. After all, this is how companies are valuated today.

    Just a thought. 🙂

  18. MJONSON says:

    I personally include the equity in my home because I plan on keeping it to rent out when I get ready to ‘move up’, thus it is an investment property even though I’m living in it for now.

    Schaub touches on this ‘trick’ in his book ‘building wealth one house at a time’.

    Everyone’s circumstances are different though…if you’re paying to just live somewhere with no future plan to invest a home almost becomes a liability.

  19. I have both methods setup in Quicken 2005. Under the Quicken Home page and the First Page tab, I used the “customize” button on the networth displayed there to include only my cash flow center accounts (savings, credit cards) and also my taxable investiment account at TDAmeritrade.
    However, there’s also the button for Financial Overview which includes the full Quicken tracked assets, the above set plus IRAs, 401(k)s, cars, home, and so on. That seems fair since I know I could sell the cars, home, or cash out retirement accounts if I was really in a bad situation. Those are all important to my overall position, but not useful for savings goals.
    I don’t like the idea of ignoring cars because they’re depreciating, I’ve got some stocks that I should ignore by that logic. Unfortunately, not everything goes up all the time.

  20. I think Jonathan has nailed it on the head by stating that its purely a preference and how you like to evaluate your progress towards your specific financial goal.

    If you want to be technical, you probably should include both cars and your house value based on simple balance sheet accounting principles. However, doing so does somewhat distort the overal picture because they are not assets that you are going to tap for your future, unless of course you are in retirement and your appreciated house is a part of your retirement portfolio.

    It’s kind of like someone with a lot of credit card debt who is trying to decide how he/she should pay that debt off. Should they pay the smallest debt first or the debt with the highest interest rate first? The answer depends on the type of person you are. If you want to get out of debt in the cheapest fashion, go with the higher interest rate cards first. If you want to see progress with your payments and need to see progress towards your goal, pay off the small ones first. Same goes with the net worth. If including the house an dcar make you feel like you are moving towards your goal and makes you save even more, then why not include it? All depends on the person.

  21. I would include any real estate to offset your mortgage, otherwise your net worth will be in the red for most of your life. My philosophy is if its an asset that I had to take a loan out to pay for, than the value of that asset should be accounted for just like the loan is accounted for as a liability. This will give you a true net asset figure. For your purposes, you may just have to readjust your goals.

  22. I completely agree with your methodology 100%. Too much noise in valuing your home and car. A primary home should not be considered an investment. Similarly, Private Banks determine your net worth by considering total assets minus your primary residence.

  23. My thoughts on including the House in the Net Worth. I would put the purchase price of the house on the asset side not showing any appreciation going forward. Then put the remaining mortgage balance on the liability side. Then the net worth increases based on the decline on the debt (mortgage). Pretty conservative way to show the increasing net worth, and still shows progress made toward paying down the mortgage, without any “guessing” toward the house value on a monthly basis.

  24. GeekMan says:

    Including or excluding your primary residence in your net worth calculations seems like an easy decision, but I’ve found it a very difficult one to make. How can I not include my home’s value and yet include my monthly mortgage payments as a debit? But including the current market value of my home so grossly increases my net worth that, on paper, I should be able to retire. But I know I can’t. Perhaps I’m oversimplifying, but maybe, just maybe, one could take the current market value of your primary residence minus (the total of the full mortgage due plus the interest expected to be paid over the term of the mortgage plus estimated improvement, taxes and maintenance costs) to get a number of the value of the home? A positive is added to your net worth while a negative is subtracted? Does that even make sense?

  25. Dave_Bords says:

    I do beleive you are correct in valuating your vehicles as a monthly expense. Only finance companies and dealerships make money off of cars; the rest of us spend lots of cash on them.

    You home is much different. There are all types of ways to turn your primary residance into cold hard cash, and ignoring that in your net worth does not paint a true picture. If you never plan on taking out a HELOC ignoring it may make sense, but if you plan on using that equity to finance a purchase or an investment of any type, keep it on the balance sheet.

  26. I put the value of my house in my net worth. I subtract out estimated comissions and closing costs to give a truer sense of liquidation value. I include the house because I like to know the impact to my net worth of financial decisions I make. That is the point of tracking my net worth is to see if the decisions I make with my money are increasing it. Interest rate, house value, paydown of mortgage all affect the net worth so I feel it is important to include it. I just won a quarter million dollars after taxes and am seriously considering paying off my mortgage. I feel it is easy to eyeball my net worth not including my house.

  27. It is good to be conservative in such aspects

  28. Nathan Whitehead says:

    As a couple other people have said, I would do two calculations. I would think of the calculations as “total net worth” and “relatively liquid assets”. Include everything that has value that you could conceivably sell in the first category (using market rates for the values). For liquid assets, only include assets that you could sell quickly, and wouldn’t mind selling quickly. So don’t include 401k, your main car, etc., in liquid assets. But you might include a second car, valuable collectibles that you buy and sell all the time etc..

  29. Michael says:

    In the end its probably not going to make a big difference one way or the other whether or not you include your cars, but I will continue to include it in my own net worth calculations. Even though they are depreciating assets, a car is a convertible asset (assuming you have a car someone will buy). If you sell it, whether its for full value privately or below value to CarMax, that’s cash in your hands. Cash that can be invested, saved, or blown on video games….

    Say you decided to go down to one car….one month you’d have to explain where the extra 8,000 bucks came from in your savings account. Might as well keep it in your net worth calculations if there’s the possibility that the asset can create liquid cash.

    All that said, if not including your cars in your net worth makes that big of a difference in your asset total, you’ve got other problems.

  30. I believe a TRUE net worth = Assets – Liabilities. Now if you want to create other metrics around your assets, liabilities, cash flow, etc. I believe that is great and I do it myself, but again your net worth is your net worth and it should include all tangible assets and liabilities. Just my opinion.

  31. Didn’t the author of Rich Dad/Poor Dad say primary residences aren’t “assets” either? I’m glad at least the cars are out of the equation, they really are just consumables. Like I said in another entry it really makes you think twice if you want a new car to know you’ll be creating a deep valley in your networth graph because of it.

  32. If you decide to change your calculations, be sure to change what you call it. Net worth calculations are pretty standard and do include those assets you are considering removing. This may lead to confusion for some people.

  33. I started out not including my house, but then the value increased by 100k, then 200k. Not including this net worth would skew our overall picture. For example, if we had kept on renting, we wouldn’t have realized this gain.

    However, we are planning on moving and renting again in the near future (3-5 years) so we will realize this gain via cash in hand. I calculate house worth by taking a recent comp and then adding 3% inflation value to the house over time, until the next good comp comes along. Sale of the house is calculated at 93% of this value, to account for general fix-up and selling costs.

  34. Strongmoney says:

    I believe that it is best to include the mortgage in your liabilities, but not include your house in your assets. Why? 2 reasons: 1) You must have a place to live, and if not in your house where? 2) If prior to dying you have a cash flow problem the bank will not forget that you owe them, but determining what the value of your house will be at that moment in the future, is impossible in the present. I believe that this is especially important if you are going to live in a community which has seen great increases in house valuations over the last 3-6 years. Valuations which may, or may not, be sustainable. If, in the future, you are able to sell it at a profit after all commissions and fees then great, if not then, you will already have a realistic view of what your financial outcome will be. As you deduct the principle from you mortgage your net worth goes up, not due to increased income, but rather due to decreased liability, which is a more reasonable way of looking at it.

    I suspect that a lot of people will disagree with me, and perhaps I am looking at the situation in a rather harsh light, but I perfer to be on the safe side. I suspect that the fairest way to manage your balance sheet is a combination of what you describe above, and my suggestion. Simply removing your house and its mortgage from your balance sheet altogether, and add the deduction of mortgage principal to your net worth quarterly or yearly. Of course, this means that your down payment disappears from your worth, but that does appear to be a fair compromise and take into account that if you choose to own a house it will always “cost” you, and that such a cost is built into the equation until you die, or significantly change your living situation.

    Thoughts anyone?

    PS – I noticed that you are a member of Costco and I was wondering if you have looked into their association with

  35. Does this have to be all or nothing decision (i.e. either include home equity and cars or not)??

    I just have a single net worth spreadsheet that graphs several different “worth” values on a chart over time, e.g.

    Total net worth – includes EVERYTHING
    Worth excluding primary residence
    Worth excluding ‘market’ assets
    A ‘total liability’ figure

    I like this for a few reasons:

    1. I don’t have to decide on any one method, I can quickly view my overall financial health from several different angles at once.

    2. For the most part the market has been very generous to us for the last 5 or so years, so this has given a nice boost to our net worth growth. Given that our retirement assets now constitute a significant portion of our overall net worth, I don’t think it’s going to be very fun watching our net worth decline (or at least not grow as fast) during the next bear market. I think that having just a ‘total liability’ figure will help me out from a psychological perspective, as it helps me see that I’m still making progress regardless of market conditions which are out of my control.

    3. Once the spreadsheet is set up it’s relatively painless.

    4. It’s rather interesting to see how the different values correlate (or not) to each other..

    Regarding home equity / mortgage debt, I like to see that number in my net worth picture because I’m chipping away at that debt each month. Perhaps it’s a psychological thing. I just try to use a conservative number for my home’s “value”, i.e. what I paid for it + inflation rather than some magic number from or the like..

  36. Thanks Nickel — couldn’t have said it better myself. Im not saying its wrong to track your home/car — its personal preference as long as you recognize the pros/cons.

  37. I agree on not counting the car. However, if you have a car loan you would also want to exclude that from your liabilities (unless you owed more on your car than the worth of your car.) However, I suspect your car is paid off.

    I like to count the value of my house less mortgage in my net worth. To be conservative I use the cost (price paid). I often make extra payments on my mortgage. Including myhouse and mortgage in my net worth calculations allows me to see the benefit of regular and extra principal payments. I do however, exclude the equity in my home from my retirement “number.”

  38. I would say that it is more accurate to include both for your net worth calculation. However, wealth should be calculated in terms of time.

  39. Hmm… maybe I should call it something different, or calculate it separately each month.

  40. From an accounting perspective, Rick has it right. Practically speaking, however, to ignore the value of real estate assets (even if owner-occupied) seems unreasonable and equally misleading. I estimate the market value on my home and then take 90% of that for an asset base (10% deduction gives me comfort from overstatement). Mortgage debt is, of course, treated as a liability.

    The higher the value of your home and the lower the Loan-to-value ratiors you maintain, the more misleading an exlusion would represent.

    With respect to cars, they’re assets. The computation of Net Worth really has nothing to do with whether assets generate income or not and so I think they shouuld be included. You should, however, write their value down each month.

  41. Ted Valentine says:

    The problem as I see it is PF bloggers have turned “net worth” into a kind of financial penis. “Watch mine grow.” “You really need to snip that part off.” “Ouch that really hurts.” Whatever. Take a viagra and an asprin and call me in the morning.

    The fact is “net worth” really is all your assets minus all your liabilities, like you were to die. If you want to call something else “net worth” to readjust your goals, I’m ok with it. Do what you like.

  42. I agree with Chris, Net Worth = everything, but then there can be subsets of Net Worth.

    I currently rent and am saving to buy a house within 3-5 years. So naturally I am going to have a large amounts of cash in savings as Jonathan does. What happens to your net worth after you purchase your house if you leave housing out? It will drop significantly, which does not portray an accurate picture of your true financial status.

    SOme argue that net worth should only include liquid assets. But isn’t a house and a car a liquid asset? Technically, whatever your house/car is worth at any given time, you can sell it and get that money back. Yes, you may gain or lose money, but it is an investment.

    If you consider a house an illiquid asset, then so is a retirement account (until you retire). Most consider that money untouchable, so shouldn’t that be taken out too?

    If you start debating what assets should be included, anything can be argued out. In my opinion, keep it simple: assets – liabilities.

  43. samerwriter says:

    For some reason this is one of my pet peeves.

    Net worth is an easily defined term. It means *all* of your assets, minus *all* of your liabilities. That includes cars, houses, clothes, and goldfish.

    Excluding your cars from this value means that the value you’re tracking is no longer your net worth. It’s some other arbitrary number. If it’s a useful one, great. Personally I track net worth, but also “retirement worth”, which is money available for retiring (excludes house and cars).

    Here’s one problem with excluding cars and houses from this calculation; it decreases the incentive to accelerate payment of those debts. If you don’t count your mortgage and home equity, then any extra principal payments *look* like wasteful “spending” when you add up the numbers.

    By tracking your mortgage and home equity, extra payments increase your home equity, so the money doesn’t “disappear”.

  44. Nony-mouse says:

    Hmm….primary residence….just 4 weeks back, my net worth was $320K….but now after purchasing my home for $300K cash, my net worth should only be $20K. Does that seem right? (if i dont include the house)

  45. Steve Austin says:

    Jonathan, your stated main goal is to accumulate enough assets to provide income for the future.

    Your future house is both an asset and provides income, now and in the future! Its income can be valued at whatever it would cost you to rent a like property. Let’s say you can buy a house for some down payment and a mortgage payment, or instead rent one for $20,000/yr. In order to have enough income from some safe bank deposit (at say 4-5%), you’d need 20x or 25x times that annual rent to equal the implied income you get from “renting from yourself”. I think that is $400k or $500k. I would use mean market rents and growths but not market prices. Some parts of the country have much higher price/rent ratios, some have much lower. Also have to decide what risk-free rate you’re comfortable with. And even after you pay it off, your house would have maintenance and property tax liability so that would have to be covered by other income-producing assets. Under this conservative accounting of your future home’s value as an income-producing asset, if/when you sell it, you can put the proceeds from the sale in a risk-free place and use interest from that principal to rent.

    Agree that vehicles should not be included on the asset side, as the implied income they provide is too fleeting. Put any car loan down as an expense instead of having to track its balance as a liability.

    Speaking of things that are tough to factor into your net worth, have you ever considered how you’d (quantitatively) value yourself in your net worth? Even after you stop working for income, presumably your financial decisions can have a non-zero effect (and either positively or negatively) on your future net worth. If you become an ace value stock picker, perhaps you can count yourself in your own net worth? ;-\

  46. Steve Austin says:

    Nony-mouse, I like your style. I may follow suit after I feel out market prices for another year or two.

    You are the ideal person to ask how you track your net worth (clearly not $20k) now that 90%+ of your net worth is in a market asset know to fluctuate from its intrinsic value over time. Do you just track it per market price for your home, or do you use a more conservative valuation? I.e. do you think you overpaid or underpaid for your new home? ;-\

  47. Hmmm………..interesting.

    Considering I’m looking at paying my house off in the next 3-5 years………*and*……….the fact that it’s worth about $500K now (opposed to the $200K I bought it for several years ago) I’d be hard pressed not to consider that worth ‘something’.

    My biggest concern is trying NOT to get caught up in “moving up to bigger/better” as I go.

    California has prop 13 to protect us from property tax appreciation……UNTIL WE SELL………..then all bets are off & the toll starts at the next value.

    IMHO……….I plan on keeping my primary residence FOREVAARRRR!!! And as soon as it’s paid off………rather than look for another property………..just start living better & look forward to a VERY early retirement………..or at least have the ability to KNOW that I don’t *HAVE* to work for………”the man”……..LOL!!

    Anybody else feel this way???

  48. Totally agree, Red. I too live in CA and am therefore subject to the good and bad of Prop 13. If you’re at 1% (plus minor annual escalations) on $200k, a sale/purchase would kill you (assuming you live relatively coastal) and prices are more like $700k+

  49. Joanne and Paul says:

    A primary residence is not an asset and never an investment, unless you live in a tent someplace or ignore the upkeep and let it become dilapidated. It is a HUGE expense all of the years you live in it. Most homeowners spend money they wouldn’t otherwise spend, just because they own a home. Home ownership includes: inflated price to start, mortgage interest, taxes, water bills, homeowner’s insurance, heating/cooling, basic upkeep (plumbing, electrical, plaster, gutters, windows, furnace, roof, water heater, paint, siding, insulation, foundation cracks, a/c, water damage), landscape beautification (i.e., lawn, flowers, patio furniture), decorating, updating, etc. You don’t make money from your home, even though it appreciates in value. Your children recoup some of the money you poured into it over 30 or 40 years and have a nice little inheritance. In other words, you pay more money than you realize for the equity you see on paper.

  50. TallWes says:

    You should call things what they are. For many reasons, such as consistency when reviewing your own numbers over time or comparing yourself to others.

    Net Worth = All Assets – Less All Liabilites. That’s why it’s called Net Worth! Now, if you really want you can break down assets and liabilities in to Current/Long Term/Short Term etc just like a company does. Then you can compare “current ratios” and all sorts of other stuff.

    Your premise of changing how to calculate net worth as it relates to retirement doesn’t make sense. You should just have an asset category called “retirement”.

    Personally, I have EVERYTHING in Quicken except for the value of my vehicles/furniture/clothing/bicycles since all of that stuff stays relatively constant over time, is relatively small, and difficult to track.

    As for the value of my home, I have the original purchase value. As we make improvemnts to it, I add a portion of the cost to the value of the home.


  51. Wow Jonathan, what a firestorm you started here. I think that it calls deeply to our fundamental differences of wants vs. needs and investments vs. expenses.

    The big problem about what ends up on the sheet is fundamentally a matter of “what is an investment”. As Nickel puts it, what you want to track *the most* is your *investable assets*. You want to track “extra” money that you can use to “make more money”.

    In this manner, you can’t track cars any more than you could track computers or clothes or home entertainment systems. These are all very liquid and they’re part of your net worth, but they don’t “grow” you more money. All of these things are just ways of handling recurring expenses involved in living.

    So I agree with the “no-car”, but the house is complicated b/c of one simple fact: “a primary residence is both an investment AND an expense”. So people are arguing from both sides and they’re both right in their own ways.

    I like the idea of having two “net worths”. Track your net worth as you do currently and trade the mortgage column for the rent column. Then add a new graph/spreadsheet/whatever that talks about the value of your home. Hey this opens a whole new set of posts for you.

    You have to do it this way or you open up a really ugly can of worms. You’ll have to deal with market fluctuations, value of repairs and improvements, effects of interest changes, write-offs of related expenses against the value of the equity (additional property taxes?), etc.

    When you get a house, just start a new sheet and work from there. If anything it will let you make some great posts about the costs of owning a home.

  52. I think you should include the equity in your home, possibly not the cars, though I do.

    I include the home for reasons stated by Tall Wes.

    I include the vehicles because I am relatively young and the cars, paid off, represent a fair portion of what little money I have earned in my short working life. It also highlights that they are not liabilities.

  53. include all assets and liabilities – including cars, homes, etc

  54. When tracking our net worth, I leave out the equity in our house. But I didn’t start keeping track of these things until after we purchased our home.

    If I were in your situation, I would definitely include the house in your calculations. It just distorts your financial history too much if you don’t. Einstein began many of his discoveries with something he called thought experiments, so let’s do one – if you took that $60K you have in cash and bought ExxonMobil stock (or more directly, some REIT), would you count that in your net worth? If so, I don’t see why you wouldn’t count that money being used for a down payment on a house.

  55. Wow, people seem to really want them to do what they do. The point of the number is to track your own change over time, not to compare yourself to others, so do what you feel comfortable with!

    I totally agree with leaving out the house and the cars when you have no plans to liquidate them. I suppose that means I view net worth as retirement worth as well.

  56. If you have $100k equity in your home, do you really think you’re net worth isn’t any higher than someone who’s renting their primary residence? Or in the case of people who include the liability but not the asset, do you really think you’re hundreds of thousands worse off?

    For me, it’s important to include house and car in my net worth statement. I live in a house and drive a car that are much more valuable than is strictly necessary. I could sell my car tomorrow and add cash to my net worth. I could retire in a house that costs half as much (or move to a rental) and add cash to my net worth. Owning a house will reduce my post-retirement expenses, too (no mortgage by then), so I’m definitely better off than someone who’s renting.

  57. Nony-mouse says:

    Steve Austin,

    I think i managed to get a good price because it was an estate sale. Bank was willing to give me a $370K loan on it. Neighbors are selling similar units for around $340 to $360K.

    Whether or not it has fluctuated since 4 weeks ago….i really dont know.

    I know buying a house was not the BEST investment in Chicago area…but it was something the wifey wanted. And from now on, I need to look at it as a HOME and not an investment. Need to train my brain.

    My net value is now $20K 🙁

  58. Nony-mouse says:

    Since the house is paid for, I am going to not consider it part of my net worth. This will motivate me to build up my savings once again. (This is just a motivation technique) Took me 7 LONG years to save that. I am starting from scratch.

    My first goal is to have around $100K by December 07. Like Jonathan, I love to work in smaller, attainable steps.

    My monthly expense after having paid up the whole house is MORE than my rent before! STRANGE HUH!! Thats just taxes and the monthly association fees.

  59. I calculate both gross worth (no taxes) and net worth which includes taxes “if I sold tomorrow” for non-qualified accounts and “if I sold at retirement” for qualified accounts. This isn’t too bad with a spreadsheet. It’s really good to be aware how much taxes you are looking at if you liquidate an asset, well in advance of doing so. For example, I have a stock fund which may go into a house down payment down the road, or I might want to switch out of the fund. As taxes are significant relative to investment gains, it makes sense to track how your assets are doing from the perspective of taxes.

  60. How you calculate and track your net worth is up to you… you’re using it to track your own progress, not to compare yourself to anyone else. So it really doesn’t matter. If it’s more meaningful to YOU to include the value of your car or home so you can see the depreciation or appreciation month to month or year to year, then track it. Otherwise, don’t bother. You can always go back and add in or remove items to past months’ numbers. It’s not like you have to report your finances to the SEC or follow generally-accepted accounting procedures.

  61. you should use something along the lines of gross worth and net worth. after all, what is the word ‘net’?

    to me, ‘net’ means…i’m leaving the country next week, how much $ can i take with me? well i can sell my house and cars and get $x and i still owe this much (-$y) so x-y=z net worth.

    i was wondering this the other day:
    if you have a tsp or 401k balance of say 100k, you’re not getting 100k when you retire. it is taxed. yet when we look at net worth, we just add up tsp and roths.

    so clearly net worth is just a simple tool to show progress. if you want to share it with others, then maybe have a liquid NW and illiquid

    do you not include a car loan as a liability? you owe that money, just like a school loan or whatever, that money is owed.
    if you pay for a house outright, do you only include that when you pay the last payment? no, i think you should use a conservative equity estimate

  62. I figured out what everybody here needs………….

    1.) Mortage! (Not even a house……just a couple grand in a monthly mortgage to suck your monthly stroke dry)

    2.) At LEAST a couple of kids. (Watch out for #3)

    3.) PRIVATE SCHOOL!!!!!!! (Here’s where, perhaps, I’m missing the extra $$$ some of you folks have!)

    4.) A wife who believes in tithing!! (I’m not a tither myself…..God forgive me……but since my kids go to a private Christian school I kinda’ think that we don’t necessarily need to give so much to the church but my wife believes otherwise & all us men know……….wife gets what wife wants!).

    Combine JUST THOSE FOUR things above & no wonder someone like NonyMouse can save up $300K in 7 years time & pay cash for a house!!

    (Red returns to fetal position & contemplates financial freedom once more) LOL!

  63. No clue why you included car for years. Regardless if a liability cost money or not, it’s still a liability. It goes down in value and if something breaks it costs money, yet can’t figure out why people think it’s an asset.

    Then real estate even if it’s your own home is still an asset. Regardless if it takes money or not, you can sell, refinance, refinance with cash out. It’s money htat’s growing, it’s an asset.

    I used the equity in my home to buy a rental property, shifted 50% of the funds, is that not an asset?

  64. Nony-mouse says:

    Red, sending ur kids to private christian schools should already be considered tithing. But i know what u mean….what the wife wants, wife gets. She wanted a house and we ended buying one….eventhough i was against it. I could have doubled the $300K in 12 years…..but my house is NOT going to be worth $600K in 12 years (In Chicago area).
    My 2 year old is going to public school and a state college and he will drive a camry that will last 15 years. If he rebels, he is out of the will 🙂

    Thank god both of us are NOT into this religion thingy!!!

  65. jbo: the answer to that question is easy. Anything you own is an asset, regardless of whether its cash flow positive or negative. Anything you *owe* is a liability. House = asset. Car = asset. Loan = liability. Robert Kiyosaki has tried to redefine these universally accepted financial terms to mean something else and some people buy into it… but Kiyosaki’s wrong.

  66. I think you’re doing yourself a great disservice by not including the liability side of the housing equation in the net worth picture and consequently you have to have the asset side. I think we’d all throw fits if you hid the CC debt and just netted out the cash backing position — it just wouldn’t be a true picture of your position. Perhaps the real question is what goes into the asset value “book value” which would essentially be the buy price or market value. If you want to use a market valuation to get the truer equity picture you’re in for a rollercoaster ride. Perhaps you could go somewhere inbetween and mark to market at semiannual intervals.

  67. I agree, jbo on the defintion of asset and liability, and for that matter, Kiyosaki.

    Interesting that such a seemingly concept as Net Worth can be examined and dissected in so many ways. I’ll stick with GAAP.

  68. So it looks like the house is lots of things, it’s an:

    1. Expense (you need a place to live)
    2. Asset (it’s yours and worth lots of money)
    3. Investment (it’s future value is uncertain, but may go up)

    It is however an “investment” with lots of overhead: it needs to be maintained with regular upgrades and repairs. Taxes must be paid on it. And almost no one buys it outright, so you’re also paying interest on the purchase.

    Truth is Jonathan, home ownership has so many facets that it needs it own category. If you really want to “maintain your net worth”, just keep the house downpayment as a non-changing line item.

  69. I think this report is useful, but I too think you shouldn’t call it “net worth”. It’s not your net worth, and there’s no law against looking at more than one report. Might be a good idea, in fact.

    You’re going to use this report to make decisions, I would guess, and not just look at the pretty picture once a month. The “liquid net worth” graph is going to have weird distortions when you trade cars, and pay down your mortgage. Like someone said, off of this report paying down your mortgage is going to look like a bad thing, which I don’t think is what you want.

    I track the worth of the car I own and our house, and just update the estimate of its value once a year from Edmund’s and zillow. It’s good enough, and the change in value is expensed to an unrealized capital gain/loss. And if you think that relatively minor fluctuations in your house price swamp a lot of your other activity, guess what, you’re right. That’s just the way it is. That’s why you look at cash flow reports and others to get more of an idea of the specifics of your financial situation.

  70. Wow … I’m amazed at the number of comments this one generated! I think you are on the right track in re-calculating your net worth. For me, I’ve tried it both ways, including and not including housing and such, and it really gives me a better sense of how ready I am (or am not) for retirement/financial independence just looking at cash and investments primarily for my net worth. It’s not like I am going to sell my house and start renting to live off of income from my housing.

  71. Net worth rather simply includes all assets and all liabilities. You may find it motivational to mislead yourself, but that is what you are doing if you don’t balance your books.

    A house whether you live in it or not is an asset. It does (Sometimes slowly, sometimes rapidly and sometimes negatively…) grow in value. And it is an asset that can be leveraged against for the purpose of investment. We personally have done just this, bought a house in 2001 to live in, experienced rapid value growth through pure dumb luck, then went out and used our equity to buy cashflow positive properties which have themselves now gone up in value considerable. We could only do this because we had that original asset, our house.


  72. Interesting comments, definitely a lot of viewpoints. Let’s see here:

    A car is still an asset, but a depreciating asset.

    A house is an asset, but overall an appreciating asset. Still may go up and down.

    I would argue as Flexo stated, that true Net Worth is ALL assets. Jewelry, electronics, or anything else with a value on the open market should be also an asset.

    So in the end, really we are still dithering a bit on the definition of net worth no matter what. But as you start leaving out more and more things, you are getting far away from net worth, and more into something else. I’ll have to think about it some more.

  73. You car and house are both assets. They may appreciate/depreciate, but they do have a value. There’s a lot of things you can’t quantify that may increase/decrease your net worth (like proximity to good jobs), so why leave out the things that are known (more or less)?

    I would also be conservative in estimating home equity, but I would definitely include it. You may put in a large amount of money in home improvment (like for a kitchen or bath), and you will want to recognize that the money went somewhere.

    And showing the car as an asset makes sense when you show consumer debt. You may owe $5K on your credit card or in a car loan, but you have that asset to match it. I believe that makes your finances more understandable, IMO.

  74. As far as tracking your net worth for financial progress I totally agree. I never included cars until I paid cash for a $15k car. I will write it off rather fast though. Showing a $15k loss right off the bat was really going to skew my measure of progress in the short-term.

    The house I track what I paid since we pay so much principal back every year, ever increasing our net worth. I don’t count equity because it was $450k for a while, some days it is $200k. Either way makes little difference in our financial progress (until we decide to move OUT of the area anyway) so I don’t include it overall in my net worth tracking. The reason I include it at all is that I put most of our assets to our house though. To not include it would leave us in a sad state. It all depends.

    I know these things are part of my net worth but just saying I am totally on the same page as you. When using your net worth as a tool to chart progress and results, I totally understand why you would discount these items – I do the same. They’re like a bonus I guess, as I mostly track more liquid net worth. IT changes due to circumstances though. Creating a different name for the method you choose may clear some confusion from your readers overall though. Calling it liquid net worth or something along hose lines. ???? OR maybe I should just say who cares? LOL. Technically it’s not true Net Worth to discount certain things, but it serves its purpose, who cares what everyone else thinks – hehe.

  75. Here are some ideas to consider:

    – Look at debt from the perspective of the value of the item securing the debt vs. the amount of debt. In other words, if you own a home and owe $200k on the Mortgage, but the home is worth $250k, you’re not in debt, as you can sell the asset, pay off the loan and have money left over.

    – When I owed money on my car, I would just include the equity in the car (Whether it was positive or negative) with my assets, if it’s negative, that means there is a corresponding claim on my assets even if I sell it, if it’s positive, that means I could liquidate it for cash.

    – Do the same thing with your home. While I don’t believe homes are Investments, they do have value so you can conceivably sell to capture that value if you need it.

    However, calculate two forms of net worth:

    – Liquid: Assets minus debt (Like Credit Cards & Student Loans)

    – Total: Include the value the equity in your home, cars, even collections (I have some collections worth a great deal of money, illiquid sure, but valuable nonetheless).

    For tracking towards your goals, use liquid net worth. Typically when they track the # of millionaires in the US, or wealth advisers/money managers/private banks/brokerages qualify you for certain services, products, etc – they want liquid net worth, not including your home. Furthermore, it’s a better measure of your ability to retire, long-term stability, ability to invest in other things, etc.

    Finally, on homes – I see it as a “Beneficial Housing Expense” due to the costs associated with owning, how houses barely outpace inflation long-term, and the fact that once you sell, you’re homeless and most of the proceeds go into the new place.


  76. Quick Comment: I have to disagree that buying a home = saving money. As you’re BUYING SOMETHING, saving money occurs when you don’t consume money, not when you spend it. The only difference between buying a home and say, a television set is that the former has more utility AND doesn’t lose value (not over the long-term).

    Transferring consumption to a place where you can get it back, doesn’t mean you’re saving money in my book.

    I also agree with houses giving the “illusion of wealth” as it’s part of the reason a lot of people are house rich and cash poor in this country. If you have $200k worth of equity in your home, you can’t access it without taking out a loan (and thus incurring interest and effectively reducing the equity’s value) or you have to sell and become homeless. Since it’s unlikely you’ll find a cheaper house than your own without downsizing severely or moving to a cheaper area, it’s not quite accurate to call it true wealth in the here and now.

    Track it for the big picture, so you can see the size of your estate – but just view as a future potential benefit, not present day wealth.


  77. The answer to this question varies for each person, but here’s my thoughts:

    1) It’s an asset if it generates income on a regular basis, or if I bought it specifically so I can resell it at a later date for more than I paid for it. (A good bar is an asset because I bought it as an investment or a hedge. A gold watch is not an investment because I bought it to wear, and I don’t have a gameplan for selling it.)
    2) If I can’t sell it without moving, it’s not an asset. 🙂

    My reason for these distinctions is psychological: If I start counting luxuries and my home as assets, then that cuts into my drive to get more clear-cut assets. Anything I buy for pleasure *should* remind me that I gave up money to get it. I should not be able to rationalize a purchase as doing both, even if it does.

    But, that’s just the way I’m wired. I can be seduced into rationalizing purchases that really aren’t good for me. This is my method for handling it.

  78. I think your home, car, and home furnishings / posessions are all part of your net worth – majory financial programs like Money and Quicken include them.

    I like the idea of calculating different totals with things excluded if you want to track that.

    For a balance sheet assets offset liabilities, so if the mortgage is a long-term liability, the house value needs to be as asset – now whether you show the current/last appraised value vs. the purchase price is debatable.

    I personally try to have an accurate valuation and I try to keep a home equity line of credit open that is based on that evaluation – my home equity line does not cost anything to get and if I don’t use it there is no cost – but in an emergency I could “survive” for X months before I have no access to money (other than retirement, credit cards, etc)…

    Keeping updated values of your possessions is important so that you know how much insurance you need. Keeping it on your Net Worth statement is a good way to remind yourself that it needs to be kept current.

  79. I didn’t feel like reading all the previous posts so this might be a repeat of what someone else has already said…

    1. Include the value of the house as an asset
    2. Include the mortgage as a liability

    This is what I do in my calculations. I figure I can sell my house for 160k and I owe roughly 130k which gives me around 30k added to my net worth. I personally think it would be irresponsible not to factor it in especially if you plan on factoring in the mortgage debt.

    As far as the car goes. I decided to no longer factor it in because I plan on driving it until it leaves me stranded somewhere and cannot be started which means the car will be worth less than the cost to have it towed when I’m done with it unlike my house which will be worth more than I paid for it when I sell it or rent it out.

  80. Just to add a one thing. It seems people either include or not for some reason or another but from an accounting standpoint, include it. If you want to know how much you are worth and you own a house, you will include the value of the home as an asset and the mortgage as a liability and the difference will affect what you are worth. It’s all pretty cut and dry but if you want to be honest with the numbers you include it.

    Now if you don’t really care about true accounting and you want to get a different picture or you are trying to answer a different question (other than “how much am i really worth”) then you can leave out or include anything you want and give the report a different name other than “Net Worth”.


  1. How Do You Calculate Net Worth? says:

    […] people choose to just not include their house at all in their net worth – MyMoneyBlog seems to think that’s a fair assesment – How about cars?  I include it, because it IS […]

  2. […] may share my net worth in the future, but for now MyMoneyBlog has an interesting post on how net worth is figured. I think I have an negative net worth no matter how it is […]

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