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

Discussion in 'Hangout' started by nala, Jun 14, 2019.

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

  1. A. Yes

    34 vote(s)
    77.3%
  2. B. No

    10 vote(s)
    22.7%
  1. nala
    Ideal_Rock

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    by nala » Jun 14, 2019
    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.
     
    


    


  2. missy
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    by missy » Jun 14, 2019
    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.
     
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  3. Austina
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    by Austina » Jun 14, 2019
    Absolutely - my accountant husband says so :mrgreen2:
     
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  4. geminist
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    by geminist » Jun 14, 2019
    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.
     
    


    


  5. kayla17
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    by kayla17 » Jun 14, 2019
    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.
     
  6. cmd2014
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    by cmd2014 » Jun 14, 2019
    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.
     
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  7. partgypsy
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    by partgypsy » Jun 14, 2019
    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.
     
    Last edited: Jun 14, 2019
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  8. baby monster
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    by baby monster » Jun 14, 2019
    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.
     
  9. clumberlove
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    by clumberlove » Jun 14, 2019
    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.
     
  10. Alex T
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    by Alex T » Jun 14, 2019
    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.
     
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  11. anne_h
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    by anne_h » Jun 14, 2019
    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
     
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  12. Arcadian
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    by Arcadian » Jun 14, 2019
    Previous house? Yes. This one? No.
     
  13. Dancing Fire
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    by Dancing Fire » Jun 14, 2019
    I guess [​IMG]... it does make me feel better though...:lol:
     
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  14. MollyMalone
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    by MollyMalone » Jun 14, 2019
    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? .
     
  15. qubitasaurus
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    by qubitasaurus » Jun 14, 2019
    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.
     
    


    


  16. cmd2014
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    by cmd2014 » Jun 14, 2019
    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.
     
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  17. Dancing Fire
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    by Dancing Fire » Jun 15, 2019
    Does diamonds count as "net worth" ? :bigsmile:
     
  18. Calliecake
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    by Calliecake » Jun 15, 2019
    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.
     
  19. Karl_K
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    by Karl_K » Jun 15, 2019
    Well since you never own your home just rent it from the government... sure why not.
     
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  20. cflutist
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    by cflutist » Jun 15, 2019
    :confused: not sure what you mean Karl.
     
  21. cflutist
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    by cflutist » Jun 15, 2019
    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.
     
    Last edited: Jun 15, 2019
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  22. OoohShiny
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    by OoohShiny » Jun 15, 2019
    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!
     
  23. Tekate
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    by Tekate » Jun 15, 2019
    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.
     
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  24. Tekate
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    by Tekate » Jun 15, 2019
    @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.
     
  25. Karl_K
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    by Karl_K » Jun 15, 2019
    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.
     
    Last edited: Jun 15, 2019
  26. Maria D
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    by Maria D » Jun 15, 2019
    I'm wondering if this is unusual? It's common in my neighborhood and true for me and my husband.
     
  27. Karl_K
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    by Karl_K » Jun 15, 2019
    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.
     
  28. Tonks
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    by Tonks » Jun 15, 2019
    Yes, it’s just not as readily liquid as some other assets. I think liquidity is what trips people up here.
     
  29. Queenie60
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    by Queenie60 » Jun 15, 2019
    Yes, we include our home as it is a fixed asset, not liquid such as cash/stocks and bonds.
     
  30. baby monster
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    by baby monster » Jun 15, 2019
    The average for US is 8 years.
     

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