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Logging our Net Worth

November 9th, 2010 at 09:51 am

I started logging our net worth each month. I use our cash and stock investments minus our debt to decide our net worth. I don't count our checking account since this amount fluctuates too often. I don't want to include non-liquid assets in my calculations. I'm also tracking our "multiplier" = net worth / yearly expenses.

This is forcing me to face the fact that most of the money I am currently saving will just be spent within the next 3-5 years on buying a car and buying a home. This is sort of depressing, but I have adjusted my goals accordingly. I'm hoping that by the end of 2015 I will have saved 1x our yearly expenses over our debt.

- When we go on vacation, our net worth will drop because the vacation account is included.
- When we buy a car with cash, our net worth will drop by the cost of the car.
- When we buy a home, our net worth will drop by the total cost of the home = down payment + loan amount.
- When we pay off debt, our net worth will rise.
- When we put money into retirement, our net worth will rise, though there will be volatility.

- Try to buy a less expensive car.
- After buying a car, put the extra money away into a low risk mutual fund and redirect the lease payment into this account. Possibly exclude this from net worth calculations to simplify.
- Pay off debt quickly. Saving to pay off subsidized student loan debt is a good way to increase net worth.
- Reducing expenses increases the multiplier two-fold: decreasing the denominator and increasing the numerator.

5 Responses to “Logging our Net Worth”

  1. MonkeyMama Says:

    This is why I include our autos and home in our net worth calculation (assets). The fact is, for the most part, they aren't that difficult to sell. (Even with the housing market - if priced right - our home would sell quickly). I just don't think cars and homes are as illiquid as people make them out to be - but I do live in a large metro area rife with buyers.

    For the cars - we then depreciate them rapidly. (Expense maybe $1k per year, per car). Otherwise, like you said, large purchases will really throw off your net worth. (No other assets cause this problem, so we don't keep track of any other assets, but cars and home. We don't depreciate the home since it generally appreciates).

    Action #2 is an interesting idea to get around the car problem. That works!

    I don't include short-term savings (to be used within the year) in our net worth - which eliminates the vacation savings problem.

  2. Joan.of.the.Arch Says:

    Your multiplier idea gets at the reason I ever even calculate networth: to figure out how long we could sustain ourselves with absolutely nothing else coming in. I would include car value in it, because we could survive without the car. We might sell it if we were on the edge. But we would not readily sell our house. There is nothing for us to downsize to without moving far way. Our house is already pretty much bottom of the market, yet also offers the potential of renting out a separate two room apartment.

  3. snshijuptr Says:

    My main goal in tracking out multiplier is seeing how close/far we are from retiring. It seems like an impossibly long way off so I figure I can track this number to keep myself motivated. This is why I don't count our physical assets since I don't plan to sell them to gain financial independence.

  4. Joan.of.the.Arch Says:

    If your profession offers a pension, don't forget to fit that in to your projections for retirement.

  5. Jerry Says:

    Yeah, the big-ticket items lead to a hit in the net worth department... but it's hard to get around without wheels (most places, anyway), and without a house (unless you just want to rent, which is an option for some people). Frankly, overall, I think it is worthwhile and leads to some insurance of a place of your own. Sometimes we just need to grit our teeth on the big purchases! Good luck with everything.

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