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Net Worth vs. Net Investable Assets

Written by Nickel - 27 Comments

If you regularly read personal finance weblogs, then you know that writing about one’s “net worth” is a fairly popular topic. While I understand the importance of metrics for tracking your progress, I have to admit that I’ve never been a big fan of net worth in its purest form… That is, how much money you’d have if you liquidated all of your investment accounts, withdrew all of your funds from the bank, sold everything that you own that has any value whatsoever, paid off all your debts, and then threw the remainder in a giant pile.

The main reason for my aversion to net worth calculations is that I’m most interested in charting a course to financial independence and, in my view, financial independence doesn’t involve selling our house or getting rid of our cars. True financial independence involves amassing enough wealth that you’re able to live of your investment income with no additional input. So I’ve always calculated net worth with a major caveat — that I’m ignoring our personal possessions, including our house (and the associated mortgage).

Well, yesterday afternoon it hit me… What I’m really talking about is net investable assets, as opposed to net worth — basically the sum of your cash and investments (including real estate investments, but not including your primary residence). You know, the sort of stuff that (at least potentially) generates income, and could thus serve as the basis for financial independence. Yes, I realize that you could sell your house and downsize, thereby generating additional wealth, but I’m going to ignore that possibility because that’s not part of our grand plan.

What about debt? The only thing that we owe money on is our house, and I tend to think of our mortgage payment (plus our additional principal prepayment) as part of our cost of living. After all, if we didn’t have a house payment right now, we’d have to pay rent. Thus, I don’t feel compelled to include our mortgage in this calculation. If, on the other hand, we had boatloads of consumer debt, I’d probably deduct that. Of course, this could get sticky if you had something like a HELOC that you used to rid yourself of credit card debt — in this case, it’s technically a loan on your home, but it’s really nothing more than re-packaged consumer debt. Fortunately, this a complete non-issue in our case.

What’s the point of all of this? Well, more than anything, this has been kicking around in the back of my mind, and I figured putting pen to paper (so to speak) would help to solidify my thinking on this. Moreover, I’ve been thinking that it would be interesting to cull through our Quicken data (which goes back a decade) and chart our progress. I’m not talking about disclosing actual values, but I thought that it might be interesting to generate a timeline showing percentage increases/decreases on a yearly basis, and maybe tie that back to major life events. If this sounds like something you’d be interesting in seeing, then keep an eye out — I hope to pull something about this together soon.

So… What’s your view? Do you keep track of your net worth? Why or why not? Or perhaps you’re more in line with me, and you tend to focus more on the value of your investable assets as opposed to tallying up the whole ball of wax? Please don’t hesitate to leave a comment.

Oh, and if you’ve already published your thoughts on this elsewhere (or if you decide to go off and do so now), then please drop me a line using my contact form and I’ll add a link to your post.

What others think:
How To Calculate Your Net Worth
What Is The Worth Of *Net Worth* If It Is Not Usable?
Net Worth, Net Investable Assets, and Net Liquid Assets
Calculating Net Worth: What Should One Do With Their Primary Residence?
Calculating Wealth as You Grow Financially
Best-Worst Financial Measures: How To Track Your Financial Independence and Security
Three Important Ways to Calculate Net Worth

Published on May 23rd, 2007
Modified on May 28th, 2007 - 27 Comments
Filed under: Saving & Investing

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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27 Responses to “Net Worth vs. Net Investable Assets”

  1. 1
    FMF Says:

    I track and record my net worth every month. In addition, I also track and record my liquid assets (the ones I can get my hands on easily and without penalty) which excludes my home and retirement investments.

  2. 2
    nickel Says:

    FMF: How do you track your home value? Also, when tracking your net worth, do you include the liquidation value of your belongings? In the strictest sense, this would be nearly impossible, but it wouldn’t be too hard to at least include the residual value of your car(s).

  3. 3
    Flexo Says:

    Net investible assets is a good metric to track and may tell a better story about a financial picture than net worth. No reason not to track both.

    In fact, net investible assets is a component of your total net worth, so if you are tracking your net worth, you are already tracking both.

  4. 4
    nickel Says:

    Flexo, you’re absolutely right. I just don’t want to expend the extra effort to include home equity, residual car value, etc. Of course, your mileage may vary, but I do think it’s worthwhile to split out your investable assets if you’re tracking your net worth, as astronomical increases in home value (less of an issue lately) are really little more than paper gains unless you’re willing to sell/move.

  5. 5
    SNicky Says:

    I agree that including the house value and mortgage is not very helpful. Like FMF, I track several categories; I check mine quarterly. I look at liquid assets (those that could be moved without IRS penalty), financial assets (liquid asset plus 401k-like accounts and investment real estate) and then net worth (the traditional definition with home value less mortgage and car). I’ve never bothered with personal items like clothing and furniture because they seem so “il-liquid”; I can’t think that I could get any real value.

    My home and auto estimates are pretty rough because but, like you, I’m really most interested in tracking my financial assets which will be my retirement resources.

  6. 6
    Jonathan Says:

    I also track and record net worth every month in the form of a balance sheet. The only non-liquid “possession” I include in the calculation is my home. I value it at what I paid for it, and don’t speculate about appreciation (although in our market, 3-4% is historical).

    As much as I might like to (for financial accountability), I don’t publish these numbers on my blog, because when I did the 1st time it just felt wrong. Like I’d be embarassed if someone from my church read my blog, as if I was parading around my net worth (or lack thereof). I think being a good steward is keeping some matters within the family–exact financial figures being one of them.

    We also try to keep track of how well we succeed (or badly we fail) at following our budget. This helps us stay accountable to the goals we set at the beginning of the year.

  7. 7
    Brad Says:

    Great idea! From this post I will add two calculations to my net worth spreadsheet: Net investable assets (net worth minus home value and mortgage) and net liquid assets (net investable assets minus retirement assets).

    I think there is value in all 3 metrics. You have to be careful that your net worth is not too heavily inflated by home value, since you don’t especially want to tap that to achieve “independence” . . . and also not too heavily inflated by retirement accounts if you plan on retiring early. But it’s still nice to view net worth as an overall picture of where you are financially.

    Thanks nickel and FMF. Excellent points.

  8. 8
    Lazy Man and Money Says:

    This is largely what I had been struggling with recently. I do count my home and car into my calculations, but like you, I don’t typically count the full liquidation value as they are not things that I would liquidate in my goal towards financial independence.

    You’ve given me something to think about here.

  9. 9
    Patrick Says:

    I track our net worth (mine and my wife’s together) every month through Quicken. I track the house and car values because it is easy to input and track, I don’t put much stock in the final net worth number.

    I pretty much look at what you’ve just described: net investible assets. I like to look at our liquid funds, investment funds, retirement funds, and consumer debt. I don’t include our residence, vehicle values, or personal belongings when I see how things have changed (except for my 2 crates of pet rocks which I fully expect to liquidate for thousands of dollars when they have a revival in a few years!).

    OK. I’m kidding about the pet rocks. But the investible assets you mentioned are good indicators of how well our net worth is currently balanced, our current financial situation, and a possible indicator of how prepared we might be for retirement (though that is many years away).

    Very nice article. :)

  10. 10
    KMC Says:

    Like Flexo, I think there’s value in calculating both ways – that’s what I do (infrequently). It’s fun to see the figure w/ home equity, but more informative to see what you have without.

  11. 11
    EA Says:

    I subtotal the assets in classes (liquid, retirement, other) before totalling them. That lets me know what I have easily accessible (checking, money market, savings bonds) vs. retirement (which should be growing) vs. things like house/car/stuff. I have only been doing this since January, and have left the house/car values stable the whole time.

    If I had a particular goal and was making the net worth balance sheet to reflect that goal, I might choose to leave off various things.

  12. 12
    Foobarista Says:

    I keep a spreadsheet that has five sections: tax-deferred accounts, taxable accounts of various sorts, exercised (but untraded) stock quoted at the exercise price, a real estate estimate, and a guesstimate of personal items such as car, clothes, electronics, furniture, jewelry, etc.

    The real estate estimate is a very conservative value from a five year old appraisal minus the balance due on the mortgage. I don’t change the RE value since I’m more interested in the mortgage paydown than the changes in the market.

    We update this every month for the first four items, and keep track of the changes from month to month. The personal items are not included in the “net worth” total – they are there for insurance purposes.

  13. 13
    Penny Says:

    Nice to know that I’m not the only one who has been tracking both net worth and net investable assets. Every month I take a financial “snapshot” of everything and plug it into a spreadsheet. I don’t include my car nor household goods since they aren’t worth a whole lot. I’ve been keeping track for years and it’s been interesting to see how things have changed over time. The biggest increase is in the real estate value since prices in Silicon Valley are nuts. And, in my neighborhood, have continued to climb. I can’t see retiring here.

  14. 14
    NCN Says:

    Sometimes I think about “worst case scenario”. So, would I sell heirloom china, wedding rings, etc.? I don’t worry about calculating networth, I think in terms of “cash on hand” or “cash available for investing”.
    NCN

  15. 15
    carr_likean Says:

    Great post. I had no idea this issue was so topical. Just a couple days ago I did a post over at Networthiq.com – “Net Worth: What Is it really worth” – dealing with the very same issue.

    I do use an even narrower measure, though- my Net Realisable Asset Value(NRAV) which, while excluding the value of my home, car, and other personal property, includes the associated loans (including mortgage) as liabilities. I also give an extremely conservative estimate of the value of my real assets, and then adjust them for transaction fees and taxes that would be incurred in the event of a sale of those assets.

    In the end, one’s measure of wealth necessarily includes some element of subjectivity in order to properly reflect the use which an individual intends to make of his “assets” as well as his overall perspective on the purpose of asset-building.

    My measure is reflective of a projected near worst-case scenario and seeks to answer the question: What is the minimum amount of cash I would end up with If I were forced to sell all my assets,repay all my debts and retain what I adjudge to be my basic comforts(ie car and house)? This then provides me with a basis for projecting how long I could survive at a basic standard of decency – as adjudged by me- If all sources of income were to suddenly dry up.

  16. 16
    RootAnn Says:

    I track ‘net worth’ & ’stockholder’s equity’ semi-yearly. My ’stockholder’s equity’ would be most people’s definition of ‘net worth.’ (Don’t ask me why I call it that – must be from vague memories of accounting class in school.) My ‘net worth’ calc does not include the house, cars, or personal items, but does subtract off the mortgage.
    What # do I use for house / cars? I put in pretty much what we paid for the house plus a modest amount for the changes we’ve made (adding a bathroom & two rooms in the basement). I use kbb.com for the dealer-trade-in value on the cars but I don’t track value of possessions.
    Why? I look at the percentage change to see if we are making progress, standing still (like when we moved / changed jobs / had a baby), or if we’d move backwards in a bad investment year (so far, thank goodness, not the case). Like EA & Foobarista, I subtotal categories: Non-Liquid Assets (house & cars), Cash, CDs/Bonds, Investment Accounts, Retirement Accounts, Children Accounts (529s & Coverdells), and Liabilities – short & long term, but do not graph them. I can see at a glance how that category has changed. I graph Net Worth & Stockholder’s Equity. Helps me with long-term planning.

  17. 17
    Mercedes Says:

    I’ve always gone with net worth as my ‘cash accounts’ or liquid accounts since in the end I probably won’t get what I want from my non-liquid assets.

    If I counted my non-liquid assets for example I would have about $1000-1400 in guns and about 2000-4000 in my two old cars (96 grand marquis and a temporarily disabled 85 Camaro Iroc/Z28 which is worth more in parts). In a quick sale I would get the bottom part of those numbers while in a non-desperate sale would get me towards the higher amount with some work and time. Those are my own assets plus a bunch of computers of negligible value and a ton of books. My retirement accounts while really not liquid could still be liquidated but would have huge penalties since there is nothing saying everything has to stay there they just penalize you so you get very little.

  18. 18
    Jeremy Says:

    I track net worth month to month. I don’t include my house because, simply, I don’t own one. :)

    I DO include my car, because it’s a significant asset that will be sold at some point. I mean, it’s almost guaranteed — you will sell your car (trade it in) and get something for it, or it will get wrecked and insurance will pay for it, or if you don’t have insurance, you’ll have to buy a new car anyway. It’s an asset whose value actually matters to your financial picture. It also offsets the loan, and it’s good to know how much car equity you have if you want to trade it in. I deduct depreciation from my car value every month based roughly on the current trade-in value, taking mileage into account. It takes about one minute to look up the value, so this is not a big deal at all.

    I don’t include other items of “personal property” because they don’t matter to the financial picture — I’m highly unlikely to sell them, and tracking their depreciation is not useful. Those get booked as expenses when I buy them, no matter how long they’re intended to last.

  19. 19
    Edwin Says:

    I agree with the post, it’s not really useful to include your home, primary vehicle as part of your net worth. No matter what you’ll still need somewhere to live and a car to drive if you’re driving today. Although those are big ticket items in terms of value they aren’t ones that you’ll likely liquidate to contribute to your ability to be financially independent. Unless you want to be a financially independent homeless person with no car, but I digress. :)

    I use Quicken too and it automatically tracks our net worth. My wife and I don’t own a home but our cars are paid for so they enter into the calculations as assets. It’s definitely worth looking at the numbers without the house/car to see how you’re really doing in terms of wealth to support your currnet lifestyle.

  20. 20
    2million Says:

    My $0.02 is to not think about it too hard. I calculate my net worth and include my home’s cost basis in my net worth. However, its important to track a financial metric and the effect is a positive one — whether its the ideal metric or not doesn’t make a huge difference.

  21. 21
    J at Home Finance Freedom Says:

    Hello. I track how many years I can maintain my lifestyle without working, as I try to explain in my recent post (click name link).

    Thank you.

  22. 22
    cheryl Says:

    I would count the home but give it a conservative estimate on what it would sell for in a quick sale. If you still have equity you should count it as something to rely on if worse came to worse…God forbid because then we would be in a world of xxxx! But a home is an asset and probably your major one…however, if you’re an investor then maybe you only want liquid assets to count?

  23. 23
    mike Says:

    Tracking RE value could be important, depending on whether or not you are willing to downgrade. If you have a 1M home in San Francisco, and definately planning to move to an equivalent in Texas (250k), then you will realize the gains off 1M – 250k – mortgage liability – taxes – RE comissions.

  24. 24
    karla (threadbndr) Says:

    I actually track several metrics Classic net worth (with house/mortgage when I had one – YEAH, but without cars and personal stuff) is one.

    CNW less the tax/insurance ect accrual (took the place of escrow) and vacation accounts is what I put on NWIQ. I’m going to be spending those accrual type accounts this year, so they need to drop out of the picture.

    CNW less house value and accruals (which is close to your Investable NW above). This is the one that I really watch, track, analyize. Like many of you, it’s the one where the decisions need to be made. I’m not planning on selling my house any time soon.

    Investable NW less the retirement accounts is my ‘go to hell’ fund. This is all the taxable investment accounts, the efund, some misc stuff like EEbonds and so forth. Cash and quick to liquidate things that let me play the ‘I could tell you to GTH’ mental game when the boss finds my last nerve and camps on it. This one is about 2.5 years gross pay right now – it’s a nice feeling.

  25. 25
    Emma Says:

    We’ve been using Kiplinger’s net worth tool to track our progress. Since we’re paying off debt, it helps to look at the progress we’re making to keep us motivated and on track.

  26. 26
    Paul Santino Says:

    Keeping tight control of every aspect of your net worth is imperative in todays ever changing business.Keeping inventory of merchandise current & moving as compared to obsolete & on shelf is the key to success.

  27. 27
    tony Says:

    What are good investments to put one’s money in at the moment? I am 25 years old and I am earning a very average salary of R5500 (i.e. +- $701.00) which excludes tax.

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