Monday, October 13, 2008

What's my Definition of Net Worth?

As I have written before, I don't place a huge importance on the calculation of net worth when talking about real estate holding that you do not plan to be selling. It may look great that your primary residence is worth "x" but unless you plan on realizing that "x" by selling, it is irrelevant to everyday life.

You cannot eat your house. In dire circumstances, housing is one of the most illiquid things you own. It is still interesting to see how much your house is "worth" based on market values and I enjoy that exercise as much as the next person but I don't dwell on it beyond amusement. I dwell more on how much do I really own of it instead.

So, when I was making my plan, I looked at how much money I would need to sustain me for life without having to sell my homes. So if the going number was 1 million, then my way of thinking would mean I need to save 1 million Outside of my real estate holdings.

If I was a landlord, it would be different because I would be relying on either the sale of the rental property or the continued passive income instead of having to save the money "the hard way". Other people money is part of that retirement equation.

I do not use the value of my furniture, cars (they are too old anyways..) etc. in my net worth calculation. Those of you who have sold used things know that you frequently take a beating. If things get really bad, I want to know that there is true liquidity. That means cash. I save at least 50% of what I earn.

No comments:

Post a Comment