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How else do you expect people to calculate their current net worth other than by estimating value of assets?
Net worth includes home equity, which, by definition is always going to be on paper, and not actual.
I would never take a cash out refi against assets unless it was an absolute crisis. Given that I have a secure emergency fund, 2 Roth IRAs that I could pull against first, and excellent health insurance, and that I live far below my means, I can't imagine getting to that point.
I would ignore that statement made by petch751, it sounds like this poster doesn't understand the concept of networth.
Be careful how you view your net worth. You are including paper appreciation, not realized appreciation. People who thought that way before 2008 got themselves into trouble and it came crashing down in 2008.
Come again?
Net worth fluctuates with the 'value' of your assets, just as it does with the amount of 'debt' you have. If you go to a casino at a high-roller table and get 100k credit and lose it, and request another 50k to play with, did your net worth just go down by 100k or not? of course it did. Same concept for when you're UP at the same casino (or housing market, or stocks, or anything else).
Come again?
Net worth fluctuates with the 'value' of your assets, just as it does with the amount of 'debt' you have. If you go to a casino at a high-roller table and get 100k credit and lose it, and request another 50k to play with, did your net worth just go down by 100k or not? of course it did. Same concept for when you're UP at the same casino (or housing market, or stocks, or anything else).
Even if you have it in the US dollar your networth changes based on currency valuations and inflation. So, the comment by Petch was essentially useless.
Come again?
Net worth fluctuates with the 'value' of your assets, just as it does with the amount of 'debt' you have. If you go to a casino at a high-roller table and get 100k credit and lose it, and request another 50k to play with, did your net worth just go down by 100k or not? of course it did. Same concept for when you're UP at the same casino (or housing market, or stocks, or anything else).
Absolutely spot on. There is no such thing as paper appreciation and paper losses. They are real gains and real losses as the value of assets change over time.
I would be curious to know how folks are factoring in taxes on tax advantaged accounts. Just looking at a balance doesn't tell the full story.
It's not factored in because it's an unknown. You also don't know what capital gains tax might be on a sale of your primary residence in the future either or if Roth IRAs face some sort of tax. For that reason you simply work off an asset number
I would never take a cash out refi against assets unless it was an absolute crisis.
But that's what many people did. They were told they're net worth was higher, (higher equity in their homes) so they used their house as banks and took out 2nd mortgages. When the housing market crashed their home value was lower than what they owed on 1st and 2nd mortgages so they were underwater.
Some people include home values in their net worth but that's based on projected value during a period of time. I understand this thinking but prefer to split it. If I have $1.2 million in cash an investments, hopefully the market doesn't crash and tomorrow that will be my net worth - money owed. Then because the home is harder to sell but does have equity I think of that different. They could tell me it's worth $500K but in a week market I may have to drop it to sell, then there's all the fees of selling.
poor investor behavior has nothing to do with what the value of anything is at any given point in time . these folks didn't just wake up one morning to find their houses were worth 30% less and if they did shame on them for not paying attention if they were near retirement and that house was their piggy bank .
most of us would know well before that our houses were falling because we would track things yearly if we were that close to retirement and things that critical .
what you are counting vary's as to the reason you are counting it .
basing a retirement income ? then it is based on today's values of liquid assets when setting withdrawals off a portfolio .
until you actually sell real estate though you can't set spending limits but for purposes of net worth but no harm in ball parking it . as prices change you need to change with it . people only over valued their real estate in projections because they didn't stay on top of it value wise or they would have known things are a lot less as they re-figured each year. .
we counted on our real estate for retirement but we also started liquidating 10 years ago .
no spending budgets were set until right before we retired and we saw what we actually had .
Last edited by mathjak107; 12-24-2015 at 01:13 PM..
But that's what many people did. They were told they're net worth was higher, (higher equity in their homes) so they used their house as banks and took out 2nd mortgages. When the housing market crashed their home value was lower than what they owed on 1st and 2nd mortgages so they were underwater.
Some people include home values in their net worth but that's based on projected value during a period of time. I understand this thinking but prefer to split it. If I have $1.2 million in cash an investments, hopefully the market doesn't crash and tomorrow that will be my net worth - money owed. Then because the home is harder to sell but does have equity I think of that different. They could tell me it's worth $500K but in a week market I may have to drop it to sell, then there's all the fees of selling.
Home value is what it is worth on the market today, not what you think it will be worth. Just the same as any other asset class. A home is only harder to sell if the seller is holding out for a price above market. You factor fees into the calculation in the same way you factor commission on selling stocks.
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