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Let's assume that in 7 years I expect to have a $20,000 expense. Currently I am putting $2,900 per year into a savings account which I am treating like an escrow account. At the end of 7 years I will have the $20,000 that I will need. I want to keep it liquid in case I need the money before 7 years. I am doing this to make certain the money is available when I need it and so that this money is allocated. For some reason it bothers me less to spend allocated funds.
When I am counting my net worth for retirement purposes, do I include the amount in this savings/escrow account? Or do I ignore the amount in this account because I am pretty certain I am going to have to spend it?
Although a CPA would probably have a good technical answer, most of us here would give a "seat of the pants" answer. Mine would be don't count it. You don't expect it to be there seven years from now.
Let's assume that in 7 years I expect to have a $20,000 expense. Currently I am putting $2,900 per year into a savings account which I am treating like an escrow account. At the end of 7 years I will have the $20,000 that I will need. I want to keep it liquid in case I need the money before 7 years. I am doing this to make certain the money is available when I need it and so that this money is allocated. For some reason it bothers me less to spend allocated funds.
When I am counting my net worth for retirement purposes, do I include the amount in this savings/escrow account? Or do I ignore the amount in this account because I am pretty certain I am going to have to spend it?
it is no different than any expense off in the future that will effect net worth once it finally happens. today its all your money ,in 20 years your net worth will reflect it.
its no different than knowing you will be giving wedding gifts to the kids, education expenses , rent you will pay for the next 40 years etc etc.etc.
your net worth only has meaning to you so if it makes you feel better count it.
Last edited by mathjak107; 12-31-2013 at 04:39 PM..
Let's assume that in 7 years I expect to have a $20,000 expense. Currently I am putting $2,900 per year into a savings account which I am treating like an escrow account. At the end of 7 years I will have the $20,000 that I will need. I want to keep it liquid in case I need the money before 7 years. I am doing this to make certain the money is available when I need it and so that this money is allocated. For some reason it bothers me less to spend allocated funds.
When I am counting my net worth for retirement purposes, do I include the amount in this savings/escrow account? Or do I ignore the amount in this account because I am pretty certain I am going to have to spend it?
Net worth is assets less liabilities. 20,000 - 20,000 = 0.
I would not count the 20,000 for retirement because you do not intend to spend it for retirement.
Until it's spent its part of your net worth. That money may or may not be used. What if you're dead at 6.5 years. Now what? Money is still there you're gone. The only time I don't count money or things as part of my net worth is if I literally spent it and got nothing physical for it ( vacation or paid for dinner or bought gift for someone etc) or if I gave it away. Otherwise if it has value its net worth.
any worth includes all assets of value. Certainly any cash including savings is count.that is why many keep savings accouts for car or other purchase n separate account; perception/allocated by saver.i have always done that with vehicles;pay off one and allocate payments to separate savings for next because I know its coming.Its allocated vehicle account.
While you are saving the money, it IS part of your net worth: your total assets minus liabilities.
Question is, what are you spending the money on? Buying $20K worth of gold would mean you still have the same net worth as before the purchase. Buying $20K worth of clothing pretty much means your net worth is down $20K, minus any funds you recoup by selling the clothes later on ebay. Buying a $20K car that allows you to continue working may reduce your net worth slightly (you can't sell it for what you bought it for, usually), but that scenario is FAR smarter than having to borrow the $20K for the car and pay interest on it.
And education may be a good investment of $20K if you are getting a degree that you are sure will result in a better-paying job than you have now (and I don't know many fields where that is true). If you are spending the $20K to send a kid to college, your net worth just decreased by $20K--but that may be a good use of the money.
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