# Net Worth



## Cal (Jun 17, 2009)

I am always confused by people who call themselves millionaires, and have 100K saved and live in a million dollar home.

IMO a your net worth really should be your liquid assets.

However that can be confusing also, as any retiree knows if you have 500K in your RRSP and 500K in non registered accounts. The RRSP is taxed heavily upon withdrawl. So is it really worth that much?

And I know you can get a loan in that situation, and use it to buy the same investments, using the tax w/o to reduce or eliminate any taxes owing on withdrawn RRSP funds.

I just wondered what parameters some of you used to calculate your net worth.


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## Square Root (Jan 30, 2010)

depends on why you are doing it. But I agree that for most reasons excluding personal use real estate makes sense. You should include the PV of any private pensions though. If yo want to feel good- include personal use real estate too. Just don't impute any value for retirement purposes.


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## steve41 (Apr 18, 2009)

Cal said:


> I am always confused by people who call themselves millionaires, and have 100K saved and live in a million dollar home.
> 
> IMO a your net worth really should be your liquid assets.
> 
> ...


 I don't find it particularly useful. I prefer to measure what I call my BQ.... burger quotient. Given all my assets:- paychecks coming at me out to a certain age, future CPP&OAS kicking in at a certain age, my RRSP/LIRA, TFSA, nonreg, that expected windfall (inheritance or selling the cottage), outstanding loans, etc, ..... what is the maximum constant after tax lifestyle I can enjoy which will see me out to some ripe old age (90-95-100).

You can modify that by, say, downsizing your house in 10 years, and investing the excess, or reverse mortgaging.

Net Worth is simply a snapshot of the present, The BQ has much more meaning.


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## jcgd (Oct 30, 2011)

Assuming you don't include your residence in your net worth, what do you do with the mortgage debt? Most people don't have a million dollar home owned outright. Look at most recent buyers in VanC as an example. I know a few families with $800K+ homes that have net worths of NEGATIVE $800K+.


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## crazyjackcsa (Aug 8, 2010)

Hey look! We're beating a dead horse! Net worth is just that, everything you own minus everything you owe. Is it useful? That's another argument. I find it useful in that after a whole year (that's how often I figure it) I can figure out if I got ahead or fell behind.


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## Mall Guy (Sep 14, 2011)

crazyjackcsa said:


> Hey look! We're beating a dead horse! Net worth is just that, everything you own minus everything you owe. Is it useful? That's another argument. I find it useful in that after a whole year (that's how often I figure it) I can figure out if I got ahead or fell behind.


Crazyj is bang on, net worth is just a score card, one that helps get better deals at the bank and makes you feel good. For example, I don't include the value of the RESP without offsetting it with the future education costs.

Although I do like the BQ .... burger quotient . . . if only because of the name!


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## larry81 (Nov 22, 2010)

as a rule of thumb, net worth should exclude home equities.


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## Jungle (Feb 17, 2010)

See I don't agree with leaving out your real estate and mortgage debt. Net worth is asset minus liability. There are lots of cases where people are housing millionaires, take anyone who bought real estate in heated areas 15 years ago. Maybe it would be more appropriate to call them a housing millionaire, than millionaire. 

Some people include personal belongings in their net worth, such as jewelry, dishes, stamp collection....

I don't agree with that, but hey, net worth can be subjective on whatever you want to include. 

Therefore we include real estate and mortgage debt. We also have a rental property so it would not make sense for us to leave that out.

We also use our net worth to measure how you are doing on a month to month basis, year over year, etc. I find it a great tool and motivator to help us measure wealth.


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## MrMatt (Dec 21, 2011)

*Net worth*

I consider my net worth everything, including my shoes. This is the same as book value for a company.

More important is my net liquid worth, which is cash & marketable securities + instruments such as GICs. I think this is the more applicable to everyday life, and what I think most people consider net worth.

As far as house and mortgage that's an interesting one.
Is the net worth of someone with a $1000k house and a $200k mortgage higher or lower than someone with the same finances, except a $300k house and a $200k mortgage?
Book value, one has $700k more, in liquid assets they're equal.

Just because you buy a house, and your cash position drops significantly doesn't mean your net worth has actually changed all that much. Buying a house, while I don't really think it is an investment, it isn't quite like spending money on a vacation or wedding.


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## uptoolate (Oct 9, 2011)

Assets minus liabilities was what I always thought. 

Love the cartoon jcgd!


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## Plugging Along (Jan 3, 2011)

I liked Rich Dad Poor Dad view of assets. It was anything that will feed your family if you have no income. A liability was anything that took away from feeding your family. It was interesting that some things could change from one to anything such as real estate which was he main one. 

It was similar to the Bq idea.

I do count all appreciating assets including RE, my commuted pensions amounts, and do to count anything of personal effects or of depreciating amounts. I also don't include jewelry or art work even if it is expensive and supposedly of appreciating value, as it's a personal effect and I think there would be difficulty in finding a buyer.


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## Daniel A. (Mar 20, 2011)

I have no assets just good pension income  if I live to be 85 I will have used 1.2 million dollars doing nothing.
Traditional thinking is assets - liabilities = wealth
One is free to inflate their value but the buck stops at the bank.


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## steve41 (Apr 18, 2009)

My main problem with NW is that there is no way can you get a measure of its size.... is it too large? too small? how does it behave over time? The thing about the "BQ" is that you can determine immediately if you are currently spending more (or less) than your BQ and adjust your spending/saving accordingly. 

The BQ is that second from the right column in the Retirement Projection report. It is derived from the 'die broke' (amortize) computation. It should ideally be qualified with an interest rate, inflation rate and die broke age. Anyone should be able to drop in their salary, retirement age, pension parameters, RRSP/TFSA/nonreg balances, loan data, and quickly determine their BQ, and either relax or adjust their lifestyle/savings regime as appropriate.


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## Spidey (May 11, 2009)

I think major assets have to be included in net worth calculations. Otherwise, a renter with $200,000 worth of liquid investments would have a higher net-worth than someone who owned a $500,000 home free and clear but only had $100,000 worth of liquid investments.


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## mind_business (Sep 24, 2011)

I see Net Worth (based on the traditional definition) as simply all your Assets minus your Liabilities. 

Having said that, after reading the "Wealthy Barber Returns", I would agree with David that including certain assets should also have future liabilities attached. For example, including a Pension amount is fine, however if you take the pension out in a lump sum, you are taxed quite heavily on a certain percentage. This should show as a future liability (I have not done this with my NW yet). Cars are fine to include, however make sure you depreciate this asset yearly. Houses are expensive to sell, so account for agent/lawyer fees when calculating its asset value. In otherwords, what is the asset's true value.


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## Ihatetaxes (May 5, 2010)

Agreed ^^^

I include my car since its paid for and worth likely $45k right now but I depreciate it every time I update my net worth statements.

My house would likely sell for about $750k and has no mortgage but I show the value as $700k on my net worth statements as selling cost would eat up some value (although I would try to sell privately as I did my last two homes and therefore might take $740k + out of a sale.


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## eulogy (Oct 29, 2011)

I think a house is fine to put on it considering that you would have to add the mortgage to the liabilities. But I don't like to see people put the value of their home. I think you should at least deduct the transaction costs of selling it.

My car I don't add because it's just too hard to place a value on. I suppose if you had a loan on it and the car is fairly new you would add it. But for me, my car is old and no loan.


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## MrMatt (Dec 21, 2011)

I think the Rich Dad definition of "asset" is somewhat odd.
An asset is anything you own, or have rights to. A liability is any obligation you have.

As far as valuation, it would be quite fair to consider the costs associated to putting the cash in hand. Commissions to sell stocks, tax payable, real estate transaction fees, early cancellation penalties etc. It's all valide.

But home equity belongs in net worth, I think the arguement really is if net worth is the right thing to be focused on. Maybe it's BQ, or something like my "simplified net cash" valuation. But those aren't really net worth, they're just more useful.

It's why people may focus on Earnings, EBIT, or EBITDA, depending on their concerns.


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## Cal (Jun 17, 2009)

All great comments and thoughts thus far.

I guess it is more in reference to the individuals mindset.

The heck with calculating Net Worth. 

Steve - I am onboard with beginning the Burger Quotient Movement.


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## hboy43 (May 10, 2009)

Hi:

Net worth is a figure of merit defined as assets minus liabilities, and it should include your house. Having said that, there are qualitative aspects to net worth that can have practical differences. Just like the various figures of merit for a company, no one figure is useful all by itself. You need to consider the context of all the other qualitative and quantitative aspects.

I actually keep my figures like a corporate balance sheet with current and fixed assets and short and long term liabilities. Current assets I consider to be all cash and stocks not in a RRSP. Fixed assets I consider to be RRSP funds and the house. This helps guide my thinking around the issue of how useful (and spendable) is the house as a piece of my net worth.

hboy43


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## marina628 (Dec 14, 2010)

I don't include any personal effects including jewelry ,computers and Art in my net worth statements just the big stuff , real estate ,cars ,cash and other forms of investments.I collect a monthly payment from an insurance company that I will have until my death but I do not include the value of this either.


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## pwm (Jan 19, 2012)

I never counted my house in my net worth. Why? Because you have to live somewhere. So you have $500,000 equity in your home. Big deal. How do you realize this equity? Sell the house and live in a van down by the river?


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## summer (Jul 7, 2011)

There are many people who have a million dollar home paid off that upon retiring, they will see and downsize.

Of course you count it.

If someone had a house paid off worth 1 mil, sold and went to a house worth 300K, that is 700K in the bank.


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## steve41 (Apr 18, 2009)

summer said:


> There are many people who have a million dollar home paid off that upon retiring, they will see and downsize.
> 
> Of course you count it.
> 
> If someone had a house paid off worth 1 mil, sold and went to a house worth 300K, that is 700K in the bank.


I see a fair number of plans which invoke that strategy. Heck, I even see the odd (planned) reverse mortgage.


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## Ihatetaxes (May 5, 2010)

pwm said:


> I never counted my house in my net worth. Why? Because you have to live somewhere. So you have $500,000 equity in your home. Big deal. How do you realize this equity? Sell the house and live in a van down by the river?


A van down by the river is where I live.

I suppose if the $500k house is paid for you could have a HELOC and use the funds for other investment opportunities. I have one but thus far have only once tapped into it for that purpose. I bought 2275 shares of RY stock in November and sold a day later for a $1220 profit. If I had bigger balls and held onto it until this past week I could have realized a +$23,000 profit for $500 in interest charges. But alas my balls are small and shrivelled.


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## Guigz (Oct 28, 2010)

On the bright side, the smaller your balls (and the more shrivelled), the less chance they get stuck on a branch and get ripped off. If they drag on the floor, there is a good chance you will step on them... Ok... I may have taken it too far...

I include my house in my NW for the same reason that people include the current value of their portfolio. Although you do not know the future value of your asset, it is still an asset with value.

Does anybody include the book value for their investments instead of the market value?


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## RoR (Jan 18, 2012)

Add that to the list of reasons I'm glad I have no balls. 

I usually include the house. Market value of the house if we sold today (conservative estimate) minus the remaining mortgage. We could sell it and live in a trailer if we really had to.


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## humble_pie (Jun 7, 2009)

the trouble i have with steve's BQ is that, if it includes all future paychecks, pensions & inheritances, then logically speaking the younger one, the richer one is.

after all, the 51-year-old has already received & spent a big portion out of those paycheques, so the $$ are gone. Whereas the 21-year-old is including 100% of those anticipated future dollars in his BQ.

potential futures can be gigantically blown up when one is 21. Who is to say she won't marry a rich man or make 10 million on her stock options.

another BQ soft spot is that it's erratically selective. Why recognize future paycheques & future inheritances while failing to recognize future windfalls & killings in the stock market. On this latter metric alone, some posters in the what-are-you-buying-selling threads could be billionnaires already


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## steve41 (Apr 18, 2009)

Future paychecks aren't included directly in the BQ The BQ is simply that constant (in today's $) after tax income which will see you out to an exact age (95 say) such that your capital just runs out. All cash flows, taxes, investment ins&outs, salary, entitlement income, loan pmts, expected windfalls... are included in the BQ.


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## humble_pie (Jun 7, 2009)

but steve you have clearly said in prior posts (# 3 & # 13 above) that the BQ includes future paycheques. Here you are:

"_ Given all my assets:- paychecks coming at me out to a certain age ..."_

then in message 13 you say that persons wishing to calculate die-broke at a certain age need to "drop in their salary" to your computation.

so that is how i got the idea that future salaries do indeed count in the BQ calcul 

i think that this distanced, more inclusive approach is useful in planning for the future. However, a net worth statement is just supposed to be a snapshot in time, is it not.


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## steve41 (Apr 18, 2009)

humble_pie said:


> but steve you have clearly said in prior posts (# 3 & # 13 above) that the BQ includes future paycheques. Here you are:
> 
> "_ Given all my assets:- paychecks coming at me out to a certain age ..."_
> 
> ...


Net Worth and BQ are different in every respect. Net worth is a snapshot, the BQ is a measure of your financial 'status'. When you determine your BQ as you are just starting out, and the assumptions you make hold true.... salary continues as specified, market and inflation rates hold true, tax rates and CPP/OAS rules stay unchanged, and you follow the investment/withdrawal schedule as specified in your plan each year, then your BQ stays constant year over year.


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## OhGreatGuru (May 24, 2009)

I don't know why we are having so much debate about a dictionary definition that is widely used in finance, accounting, law, business, etc.

The only things worth discussing about net worth are:
1) Don't be obsessed with it. (some people seem to be these days); and,
2) It should not be the sole measure of your financial well-being.

You can't correct your dissatisfaction with net worth as a measure of your fianancial well being by changing its definition. It is what it is.


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