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Location: Chapel Hill, NC, formerly NoVA and Phila
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This is a simplified version of how I record my net worth (I included everything) so it's categorized and easy to see what is what:
ASSETS
--Non-Retirement Savings/Investments
------Savings Account
------Checking Account
------Certificate of Deposit
------Mutual Fund A
------Mutual Fund B
--Retirement Savings/Investments
------401K in Growth Mutual Fund
------401K in Income Mutual Fund
------Roth IRA in Aggressive Growth Mutual Fund
--Real Estate/Possessions
------Home Value
------Car A Value
------Car B Value
------Camper Value
------Jewelry and Watches Value
------Hobby Collection Value
TOTAL ASSETS (Non-Retirement + Retirement + Real Estate/Possessions)
I think we all get the difference between net worth and savings. Net worth is everything you own: savings, retirement, cars as well as every pair or underwear and socks in your drawer. What the article is referring to is savings because that is what you need to draw from. You can sell a car, but like underwear you will probably need it or a suitable replacement, so I wouldn't look at those items when determining your savings.
Now home equity is another animal altogether. Unless you are selling or drawing off the equity it's no different than your socks drawer, it holds value but not in terms of actually spending dollars.
do you count your car ? your furniture if you sold it ? jewelry ?
there are many reasons for computing your worth .
if it is for estate tax purpose that is one thing , if it is to feel good that is another . in our case i only count what is liquid since that is all that matters when we set our spending goals each year in retirement . if i don't want to or can't sell it then it is not in that tabulation . i have no reason to want to count anything else .
what don't i count ?
car ,jewelry ,furniture , art work , a life insurance policy cash value i have , ear marked for our kids when i die and likely a few other assets i have no intention of selling ..
it has been decades since i had any reason to bother to add up everything of value i owned whether i was selling it or not . a divorce was the last time there was a reason for a full snap shot .
It would be foolish not to.
I'm currently collecting numbers to compare building a 4 plex (and perhaps a small storage business) to buying, and YOU'D BETTER BELIEVE I'm keeping in mind the value of my coin and firearms collection, as well as my small Collection of motorcycles I can no longer ride. (Hung onto in the hopes I can again one day)
Once I've got those numbers in hand I'll be deciding if I want to liquidate a portion of those assets and pay cash, or get a morgtage.
While some aren't for sale (grandfather's pistols etc)
I'd be a nimrod if I didn't keep the rests value in mind to keep my options open.
I think we all get the difference between net worth and savings.
Somehow.... I think not.
Quote:
Net worth is everything you own: savings, retirement, cars... What the article is referring to is savings because that is what you need to draw from.
This assumption might be the problem.
I suspect that the authors phrasing missed the mark by not clearly including
what most will do with savings that aren't spent: make investments of various merits.
(equities or property or antique motorcycles or any other thing that COULD be liquidated)
Quote:
Now home equity is another animal altogether. Unless you are selling... it holds value but not in terms of actually spending dollars.
I don't agree that having a plan to sell (or not) has any bearing on anything relative to net worth...
beyond some discounting that might apply in a distress sale situation. Either you have X or you don't.
I'm 28 and my husband is 30. We have $70k equity in our home, $50k each in retirement and $50k in our bank. It still feels like we are not doing enough to save for our future.
I'm also unclear if the guidelines mean "gross" or "net." They never seem to specify.
If I need to have 20 times my current gross income saved by retirement, I will never retire. However, 20 times net income is somewhat more within the realm of possibility assuming reasonable ROI, although still a a stretch. Also what year's income do I use to make the calculation? The year I started working a "real" job? Mid-career salary? If we're talking my current net salary, again, 20 times will be difficult but not impossible.
If you make $200k but live like you make $30k your retirement number will be lower than someone who makes $200k but lives like they make $200k.
This isn't a heard concept folks...
Take your yearly spending amount and multiply by 25. That's your number. Don't include mortgage, this assumes mortgage is paid off.
Example, $3,000/month in expenses, equals $900,000 saved. Gives you a reasonable chance of making it through your life and not running out of money. This also allows for increasing your yearly draw for inflation.
If you make $200k but live like you make $30k your retirement number will be lower than someone who makes $200k but lives like they make $200k.
This isn't a heard concept folks...
Take your yearly spending amount and multiply by 25. That's your number. Don't include mortgage, this assumes mortgage is paid off.
Example, $3,000/month in expenses, equals $900,000 saved. Gives you a reasonable chance of making it through your life and not running out of money. This also allows for increasing your yearly draw for inflation.
^^Yes, this sums it up quite well.
I would include the mortgage, though, if it isn't going to be paid off....but realistically, it probably should be paid off by retirement age. On the other hand, housing costs may go down, but health care costs often go up, so it's best to be conservative and include the mortgage payment.
If you make $200k but live like you make $30k your retirement number will be lower than someone who makes $200k but lives like they make $200k.
This isn't a heard concept folks...
Take your yearly spending amount and multiply by 25. That's your number. Don't include mortgage, this assumes mortgage is paid off.
Example, $3,000/month in expenses, equals $900,000 saved. Gives you a reasonable chance of making it through your life and not running out of money. This also allows for increasing your yearly draw for inflation.
How many people making $200,000 live as if they make $30,000? I think if you look at all the people you know their spending kind of matches their income in nearly every case.
If 8 times your salary is making people wince your example of needing $900,000 to be able to spend $36,000/year will cause them to jump off a bridge. I realize this is a 4% draw down but SS should also he considered.
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