It’s been a number of years since I revealed my net worth. I’ve still been tracking it, but instead of doing it once a month, it is more or less once a quarter. One could argue that I should get in the habit of doing it on a specific date. That would allow me to compare year-over-year to gauge growth and come up with some pretty charts.
Alas, I haven’t done that for two reasons:
- I’m kind of Lazy. With two kids and a dog, it isn’t my highest priority to have it scheduled. Why? Well for the other reason:
- Much of the information is nebulous at best.
I want to expand on that later point. Being in my late 38s, a large percentage of my net worth is in real estate and the stock market. Either one, or both, can change drastically at any given time. I’ve seen each them do it several times in my lifetime and if I live out my life-expectancy will see them change drastically several more times.
I can take some action, such as diversifying my holdings, but I have no control over either the stock or real estate markets. I suspect most everyone reading this is in the same boat.
It simply doesn’t matter if I measure my net worth at specific times because I know that at any given point it can be plus or minus 10% what it is right now.
That said, it is still important to look at your net worth. It gives me a gauge of where things are going over time. If it isn’t going up, there’s a problem. If it’s going down, there’s a problem. If I were to take a three-year view of a time of good market growth and saw it stand still, there would be a problem.
I was fortunate enough to look at it last week, which happened to match-up with a time last year. In that time, our net worth is up 18.6%. As expected, a lot of the growth is from real estate appreciation and the booming stock market.
Perhaps more importantly, I can see a net worth milestone in the distance. Until I did this last calculation, my binoculars simply weren’t powerful enough. It’s extremely unlikely that such growth would continue for another 12-16 months, but if it did, we’d probably reach that milestone.
It would be a stretch, as growing kids will certainly bring down our savings a bit (but they are so worth it!). In addition, we’d have to have almost everything fall our way. It’s happened before, but it isn’t the kind of thing we’d want to count on.
Seeing this milestone in the distance gives us a target, something to try to work for. That’s powerful motivation. If we work hard and don’t make it, we won’t be demoralized as we knew that good portion of it was out of our control anyway. It’s a psychological win-win.
I find that as I hit milestones, and surpassed them, they meant not as much to me as I thought they would. The issue with Net Worth is that it is kind of like looking at a toy chest. There are some toys you can play with, there are some that are your favorites, and there are some that you don’t play with because of various reasons. Net worth is like that. You have assets which are cool for net worth but you cannot play with them (liquidity).
An example of this is real estate and life insurance (which are considered assets for net worth). So let me see, yes I have a house, which I can use for home equity lines of credit, but that puts me more in the red than in the black. Life insurance is like a toy you have, but cannot do anything with until you die.
In my example, I have a $400k life insurance policy, and have $300k in equity in homes (I have rental properties, plus my own home). So at the end of the day, Yes, I am a millionaire … but can I live stupidly as much of my million dollars is “non-liquid” and not able to be turned into “cash” if needed. Granted I am not hurting, but still this makes the issue a “what does a millionaire mean now days?” conversation.
Lazy Man says
I love the toy analogy. It’s perfect. I think my assets are like yours, toys that I can’t play with. It describes the rental properties perfectly.
When I explained the milestone to my wife, she kind of blinked at me twice, like, “So what?” It wasn’t the reaction that I was expecting, but in hindsight, I should have expected it. It’s not like we can go afford to live in a huge mansion with butlers and such. It may sound crazy to some, but I like the forced savings of real estate and the rental properties. Until the mortgages are paid off, we are almost forced to live frugally to keep the emergency fund high.
I don’t count my life insurance in my net worth calculation. I think it’s because one could buy a million dollar policy at a young age and then say, “Hey, I am a millionaire.” The second that money comes into play you go from being a “am” to being a “was.”
J. Money says
awww I was waiting for you to post up the actual numbers! boooooo, haha… Is this milestone a million dollars?? I’m going to tell everyone it is :)
Lazy Man says
I’m such a tease.
Now that I’m not anonymous, it’s harder to put the numbers out there. I left a few pieces of the puzzle in the article.
I would have to agree with “Big D”. Once I hit certain milestones, they don’t end up being as important as I thought they would be and feel. I’m happy I hit certain milestones but love to create goals that are higher from there.
We reached a net worth milestone of sorts last year. My first response was to question the numbers – e.g. does home equity really count? How about our daughter’s 529 plan? I would never count life insurance (except when thinking about my spouse’s financial life were I to pass away, or vice-versa).
Eventually I started to have a sort of mid-life crisis, wondering if I was in the right job, should I be a stay-at-home parent, should we spend more of our money, etc. I never actually did any of those things, just thought about them.
Lazy Man says
Ouch. Perhaps because we are “on track”, I have been relatively okay with what I do despite the relatively meager money it has made over the last few years. Of course, it helps that the wife brings in a very good income.
The home equity/net worth question has been around forever. My take is that equity counts. It gives you the ability to get a reverse mortgage or HELOC. If you pay off your home, you have mostly guaranteed your shelter, one of the biggest expenses, for your lifetime (excluding insurance, taxes, etc.). That has value reducing your monthly expenses. When something has so much value, I have a hard time excluding it.
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 22 and 7 months, they’d rather watch Baby Einstein. Putting money in a 529 vs. counting it in your net worth is a very difficult subject that is worth discussing. I’m marking it down as an article idea for next week.
My initial gut feeling is that sometimes we make decisions 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. 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.” I like to think that this goodwill/karma comes back to me.