Comments on: The Ultimate List of What Belongs in Your Net Worth (And What Doesn’t)

By: J. Money

J. Money — Thu, 20 Jul 2023 10:34:46 +0000

In reply to Odin's Beard. I can get down with all of this 👍 Thx for popping in.

By: Odin's Beard

Odin's Beard — Wed, 19 Jul 2023 16:24:08 +0000

Regarding pensions, here’s my take on it. Most people nowadays, unless they work for the government or are the member of a union *probably* do not even have a pension fund set up and won’t get one. So for a long time I’ve not included mine. But then I got to thinking, “Wait a minute, this *is* my money, I just can’t access it *now*. It’s a deferred asset, one I’m lucky to have, so I’m definitely counting that sh#t.” There’s a tendency to low-ball things to be safe, and I totally believe in that approach…better to be wrong and actually come in too low on your estimates than too high, then again, there’s no sense ignoring stuff that already belongs to you just because conventional wisdom says you should.

I already know the formula for my pension annuity, so I can make rough estimates about it’s *future value*. Once you have that number, it’s pretty easy to get an approximate NPV. Nothing is certain in life, you don’t know how long you’ll live, or what inflation or anything will look like, but you can just adjust as new info comes to light on the fly. For that reason, I’m DEFINITELY including my pension’s approximate PRESENT VALUE in my net worth. For sure. And so should you if you’re vested and the fund is solvent.

As for cars, I guess that depends. I don’t drive very much (and when I say not very much, I mean less than 5,000 miles a year…easy). My current car I bought in 2020 with cash and it only has like 10,000 miles on it. I value it by using Edmunds AND KBB, then average those two values, and then knock like 15% off that number. I’ve found that it tends to be in the ballpark. If your car is really used and abused, make it 20%. Basically, the car has SOME value…it may or may not be very significant, but it isn’t $0.00…so I’d include it if you own it.

By: J. Money

J. Money — Thu, 25 Jan 2018 22:37:33 +0000

In reply to Paul Burke.

I hear ya, brother :) And totally agree that there are a handful of different ways – and reasons – to track this stuff. Whether you start the divulging trend over in your side of the world or not though, please give my regards to the Mrs. for a quick recovery! None of this $$ stuff comes close to the loved ones in our lives :( And hopefully there are many moons for y’all to share in your early retirement!

By: Paul Burke

Paul Burke — Wed, 24 Jan 2018 16:47:57 +0000

Hi J. I think it depends on your reasons for calculating your net worth. Many FIRE bloggers seem to be aiming for ~$1m with 4% drawdown for a ~$40k income. In this context, net worth might include those assets that contribute to the ~$1m. In my case, I stopped work 21 months ago aged 57 and my wife stopped work 12 months ago (due to ill health) aged 54. We plan to draw our pensions when we are 60 (only 15 months to go in my case) because they are actuary reduced if we draw them before Normal Retirement Age. In the meantime, we are living off savings and investments. We’re not planning to sell equity in our house to fund retirement, so I wouldn’t include that. If I only include savings and investments, then our net worth wouldn’t be all that impressive (currently about £200k). So, most of our net worth is locked up in our pensions (we maximised our contributions to achieve the best possible pension – I’ll be 3 years and my wife 6 years contributions short of the maximum possible pension based on our final salaries). If I assume our annual pension income is equivalent to 4% of the total pension pot, then I could simply multiply by 25 to estimate the value of the pension pot (and add in the lump sums obviously). Maybe I’ll do that soon, although I’d feel a bit exposed if people I know were to read it – we don’t normally share this stuff in the UK ;-)

By: J. Money

J. Money — Fri, 10 Nov 2017 15:03:01 +0000

In reply to singledadmoney. I'm glad it helped! And of course I'm all for sharing as much as you can with others, as I really do think it helps this stuff sink in more for people. Real life numbers is always easier to learn from than theories!

By: singledadmoney

singledadmoney — Fri, 10 Nov 2017 14:40:54 +0000

J. Money,

I’m glad you hit on cars. They are something I keep in my net worth spreadsheet that I often wondered if they belong in there. They are paid for beater cars, but their near liquid (1-3 weeks to sell) value represents a significant portion of my net worth right now. I hope to start a Net Worth Tracker on my page soon, because I think it’d be interesting for others to see my progress on a single income.

Thanks for the great read,

Brian

By: J. Money

J. Money — Tue, 07 Nov 2017 20:48:26 +0000

In reply to Peter. yup! all good things to consider in the planning process! I don't factor them into these net worths here as they're just my "quick fix" to getting a general idea of things, but for the future strategizing/retiring calculations they're most definitely important to include.

By: Peter

Peter — Tue, 07 Nov 2017 02:43:27 +0000

This might seem a little wonkish, but I think it is important to recognize the impact of taxes on net worth. Here are a couple examples:
* 401k/IRA: when contributing to the 401k, it reduces your current taxes, but you’ll have to pay taxes on withdrawals. Basically, the government owns a piece of your 401k. Recognizing that you’ll have to pay those taxes eventually by reflecting taxes immediately puts the traditional 401k and IRA on the same basis as the Roth. To reflect taxes, I just reduce the value of my 401k by 25%.
* Taxable accounts: Just like a 401k, the government gets a piece of the earnings in your taxable account. This means that if you are sitting on $1,000 in unrealized capital gains, then those are reduced by 15% or $150 for taxes.
* Taxes on interest/dividends/realized gains: I have a special “Tax Liability” account that I accrue each month. As I receive interest payments or dividends, I account for the taxes I’ll have to pay on those by increasing my tax liability. As I withhold money from my paycheck or make quarterly payments, I’ll reduce the tax liability. Accruing a liability also helps with the issue of quarterly payments causing a swing in net worth.

Other thoughts:
* Include the value of the defined benefit pension – it is basically a long bond.
* Include the value of your home. If you didn’t own it, you would need to pay rent. The rent you would pay (called “imputed rent”) is what your house earns.

By: J. Money

J. Money — Wed, 01 Nov 2017 17:51:29 +0000

In reply to JoeTaxpayer.

Haha… I like it :) And not a bad way of doing it either – I’d much rather side on being overly conservative like that than the opposite direction! now get your early retired a$$ back to FinCon! We missed you this year!

By: J. Money

J. Money — Wed, 01 Nov 2017 17:49:37 +0000

In reply to Gene Roberts.

Ooooh I’m digging that idea… With this route you can account for *everything* no matter where it falls! And not a bad idea in general to be tracking either, just so that your significant other and family knows the general value of the most important stuff too… Maybe I’ll do the same and throw my coin collection and stock options and other things in there just so it’s all down in one main spot like that… you got me thinking!!