A couple of weeks ago, I put out an article explaining that our family was approaching a net worth milestone. My key takeaway, was that it was just a number, like any other number. One commenter mentioned how he had a similar situation, but most of his money was in the form of real estate equity and other investments that aren't easily liquified.
Questions like these are quite common when someone does a net worth calculation. I don't think there's a standardization body declaring exact what counts in net worth. My advice is just be consistent with what you count month-to-month and take note of the relative changes. It's almost as if you have a bathroom scale that you know is not 100% accurate. You know it is very close, and it is going to be consistently inaccurate, by 1-3 pounds low or high. You can still use it to measure your progress, because losing 20 pounds on that scale is the same as losing 20 pounds on any other scale.
However Steve had an interesting question, which was (paraphrased), "Does our daughter’s 529 plan count in our net worth?"
I usually have an immediate instinct about what the right answer is and this time I did not.
The Case for Excluding College Savings (529 Plans) in Net Worth
I'm going to go with the obvious here. The money is not intended to be used by me... I've already made a commitment to give it away. It seems fair to consider that money already given away.
The Case for Counting a 529 Plan in Net Worth
You are reducing your own net worth when you deposit money in a 529 plan. If you don't account for it in some way, the lower net worth may cause you to think twice about contributing this money, even if it can be a financially sound move.
If you've made a commitment to pay your children's tuition, then meeting this obligation is obviously of financial value. If you suddenly came into a large sum of $50,000 and used the money to fulfill that commitment, it has value in helping you better your financial situation in other ways. It's a little like putting money in a mortgage, but not counting the equity. If reaching the goal frees you up from making mortgage payments, that's typically a very big deal.
My Thoughts on Net Worth and College Savings
I don't count 529 plans. I consider it money that I've given to my children. They can count it in their net worth, but at 23 and 8 months, they'd rather watch Baby Einstein.
We make decisions everyday that might not lead to best net worth, but benefit us in other ways.
For example, if you were to look at the recent comments in the right column on any given day, you'd probably see giving a lengthy response to someone leaving a comment on one of my MLM articles. Spending my time on a response is not the best move I can make to grow my net worth... in fact is often a complete waste of time. I'd be better served going forward with one of my many projects that I have lined up. Yet, I love to help people and respond to try to help them. In a sense I'm trading "net worth capital" for "spiritual capital" and I'm okay with that. I like to think that this goodwill/karma comes back to me and so far I feel like it has.
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