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Do you consider your home equity a part of your net worth?

Should your residence equity be considered a part of your net worth?

  • A. Yes

    Votes: 35 77.8%
  • B. No

    Votes: 10 22.2%

  • Total voters
    45

nala

Ideal_Rock
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Oct 23, 2011
Messages
4,157
I’ve read articles that argue both sides. Curious if you do. I’m referring to the home you live in. And your equity. Can it really be a part of your net worth if you can’t liquidate it without replacing it. I get the argument that if you downsize then the remaining cash is now liquid and so that counts. But if you don’t plan to downsize, then how can it be considered a part of your net worth. Would love to hear your thoughts.
 

missy

Super_Ideal_Rock
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Joined
Jun 8, 2008
Messages
36,326
Not our main home but our beach house. We always will need to have a main home so won't be selling that without needing another home. But the beach house is extra and we don't need it to live and I include that in our net worth.

My dh doesn't agree. He counts both as part of our net worth. He says it is all our equity. Equity is equity. Is it liquid? No. But it is still equity. Just not a liquid asset. It is a fixed asset.

ETA I didn't vote as my answer is split.
 

Austina

Ideal_Rock
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Joined
Feb 24, 2017
Messages
4,353
Absolutely - my accountant husband says so :mrgreen2:
 

geminist

Rough_Rock
Joined
Dec 21, 2016
Messages
12
Technically, it is. But you have to live somewhere. As you said, if you intend to downsize or sell and rent at some point, then the equity in your home is available. It will be a part of your estate one day as well. But short of a reverse mortgage, then no, it's not available to fund your retirement and any good financial plan would obviously take that into account.
 

kayla17

Ideal_Rock
Premium
Joined
Jan 14, 2003
Messages
2,115
I don’t claim to know much about these things, but I’ve never thought of my home’s equity as part of our net worth.
 

cmd2014

Ideal_Rock
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Joined
Aug 6, 2014
Messages
2,532
Yes, as it's still equity that you can have access to if you sell. If you sold your house, you could choose to rent a small apartment or move into an assisted living facility, or go live on a cruise ship, and use the equity from your home to fund that over many years if you wanted to. Nothing says you'd be obligated to buy another home. That's why banks and other creditors factor it into your net worth.

What I *don't* count it as is money towards my retirement fund. Because there I do assume that I would want to stay in my home and not use the equity in it to fund my day to day expenses.
 

partgypsy

Ideal_Rock
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Joined
Nov 7, 2004
Messages
6,434
I consider the equity part of my net worth, but not part of my income producing/liquid net worth. I don't use my equity to determine my retirement savings, or when I can retire.

Technically, accounting speaking it is definitely part of one's net worth. But net worth shouldn't be what you use to figure out if you can retire or not. That is determined by a) how much you spend every month and b) how much liquid/income producing money you have to cover that spending every month. Two very different things. A person can be a millionaire and never be able to retire, if those two things don't match.

some popular rules of thumb are, 4% of what you have saved liquid, can be safely withdrawn every year. Another one is saving 25 times your annual living expenses.
 
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baby monster

Ideal_Rock
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Joined
Jul 2, 2007
Messages
3,631
Talk to my retiree neighbors. They sell and move to lower cost areas to live off house equity they built up over the past 20-30 years. Yes, that's how long people own houses in my neighborhood. Yes, they retire on that.
 

clumberlove

Shiny_Rock
Joined
Sep 22, 2018
Messages
254
Yes, because otherwise I would have almost no net worth! I chose to use some inherited money to pay off the mortgage, so we own outright. I suppose I could have invested that money instead and kept it as a liquid asset, but paying off the mortgage has given us a lot of financial freedom.
 

Alex T

Ideal_Rock
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Oct 24, 2012
Messages
5,278
Yes. We own our home outright & definitely class it as part of our net worth. If necessary, we know we can sell it, cash in & buy a smaller home in a more urban area where property is cheaper.
 

anne_h

Brilliant_Rock
Premium
Joined
Jun 13, 2005
Messages
1,024
I voted yes.

Now, the trickier question for me has been... should I count the money I've invested for my childrens' education in my net worth.? Technically, I own the assets, but I know I won't be using that money. So personally, I choose not count it in my net worth calculations.

BTW, I *do* include the resale value of my jewelry in my net worth... lol

Anne
 

Arcadian

Ideal_Rock
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Joined
Sep 17, 2008
Messages
7,286
Previous house? Yes. This one? No.
 

Dancing Fire

Super_Ideal_Rock
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Joined
Apr 3, 2004
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32,094
I guess
... it does make me feel better though...:lol:
 

MollyMalone

Ideal_Rock
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Joined
Jun 2, 2013
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3,132
* * * some popular rules of thumb are, 4% of what you have saved liquid, can be safely withdrawn every year. Another one is saving 25 times your annual living expenses.
Do you mean we should be-should have been salting away 25x our household's annual living expenses each year until retirement or that we should have at least 25x our annual living expenses saved by the time we retire? .
 

qubitasaurus

Brilliant_Rock
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Joined
Dec 18, 2014
Messages
1,193
I am a little confused, it sounds like we are defining the term 'net worth' and people seem happy with different definitions reflecting the fact that it seems to be a common language phrase without any strict technical definition. I am sure most people arround here will answer yes, as the appartments start at $1.5 million (most start arround the 2 million plus mark) and thus alot of people have the bulk of their wealth locked up in their house. But that doesnt really tell me much. We could rerun this thread now with the word 'asset' and see if the answers were different.

This begins to matter if you are filling out a portfolio for an investment account at the bank, or somethinh like that. But then your wealth manager would be able to clarify.
 

cmd2014

Ideal_Rock
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Joined
Aug 6, 2014
Messages
2,532
There’s a common definition:

“Net worth is the amount by which assets exceed liabilities. Another way to say this is, it's the value of everything you own, minus all your debts.Net worth is a concept that can be applied to both individuals and businesses, as a measure of how much they are really worth.”

It seems like people are making a separate question of whether or not to count it as part of your retirement planning, but that’s a whole other issue.
 

Dancing Fire

Super_Ideal_Rock
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Joined
Apr 3, 2004
Messages
32,094
Does diamonds count as "net worth" ? :bigsmile:
 

Calliecake

Ideal_Rock
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Joined
Jun 7, 2014
Messages
7,128
My husband and I discuss including our home often. He includes it, I do not. I view it as we have to live somewhere. We also don’t consider the value of our vehicles. We would never include diamonds in our net worth.
 

Karl_K

Super_Ideal_Rock
Trade
Joined
Aug 4, 2008
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10,039
Well since you never own your home just rent it from the government... sure why not.
 
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cflutist

Ideal_Rock
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Joined
Jul 12, 2004
Messages
3,915
I would include the equity in my home in our net worth. I paid off my mortage more than 10 years ago before I retired at 54.
Last year, my mortage dropped off my credit report (paid off more than 10 years ago) and my FICO score dropped 20 points. It said we didn't have any student or vehicle loans (we paid cash for our cars). So all I use are my Rewards credit cards which are setup with autopay to pay the full amount each month.

With hubby's social Security and pension, we only withdrawal 2% from our investable assets each year. This pays for daily living expenses and our cruises, and diamonds once in a white.
 
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OoohShiny

Ideal_Rock
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Joined
Apr 25, 2014
Messages
7,614
There’s a common definition:

“Net worth is the amount by which assets exceed liabilities. Another way to say this is, it's the value of everything you own, minus all your debts.Net worth is a concept that can be applied to both individuals and businesses, as a measure of how much they are really worth.”

It seems like people are making a separate question of whether or not to count it as part of your retirement planning, but that’s a whole other issue.
On that basis, there must be a high percentage of people (especially young people with a mortgaged property) that have a Net Worth in the negative numbers!
 

Bayek

Ideal_Rock
Premium
Joined
May 11, 2013
Messages
7,064
No. We can't readily turn it into cash so we dont' count as part of our worth. :) We are collecting social security and we have small (teeny weeny wittle) pensions. My husband will jump to his own SSA in 2 years so that will change. We own our home and car. We do not usually hit up our investments, only the interest paid, (but I did just buy a new ring and I had to hit it up :) ) I have to be honest, with the Trump bump in our investments we have been able to live well on the interest these accounts have brought us. We would live well without the bump too.
 

Bayek

Ideal_Rock
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May 11, 2013
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7,064
@Karl_K puleeze, so do you expect your cops, your roads to be a gift from everyone in your town. Good old Ayn Rand. Pffft. You should be in favor of taxing the heck out of the rich.
 

Karl_K

Super_Ideal_Rock
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10,039
@Karl_K puleeze, so do you expect your cops, your roads to be a gift from everyone in your town. Good old Ayn Rand. Pffft. You should be in favor of taxing the heck out of the rich.
Since we are stuck with income taxes for likely ever.....
I am in favor of a flat tax with no special deductions other than standard and per person with very large standard deductions to shield the poor.
For example no taxes on the first $60k married filing jointly as a base that increases tied to dollar buying power and average wage not using BS numbers that are used for inflation today.
Higher tax rates are not the answer when there are a zillion special interest deductions that sheild the rich and make their effective rate lower than the middle class.
 
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Maria D

Brilliant_Rock
Premium
Joined
Jan 24, 2003
Messages
1,897
Talk to my retiree neighbors. They sell and move to lower cost areas to live off house equity they built up over the past 20-30 years. Yes, that's how long people own houses in my neighborhood. Yes, they retire on that.
I'm wondering if this is unusual? It's common in my neighborhood and true for me and my husband.
 

Karl_K

Super_Ideal_Rock
Trade
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10,039
:confused: not sure what you mean Karl.
Try not paying your rent to the government and you will quickly find out who really owns it.
I'm a little bitter a friend on mine on a limited fixed income is being taxed out of their house.
Its to the point that taxes are 2x their mortgage payment.
 

Tonks

Shiny_Rock
Joined
Dec 27, 2017
Messages
442
Yes, it’s just not as readily liquid as some other assets. I think liquidity is what trips people up here.
 

Queenie60

Ideal_Rock
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Joined
Sep 15, 2014
Messages
4,491
Yes, we include our home as it is a fixed asset, not liquid such as cash/stocks and bonds.
 
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