Follow up posting: Calculating Your Net Worth – part 2.

After my recent article on Calculating your Net Worth, I found that Consumerism Commentary is also addressing this issue in their posting How to Calculate Your Net Worth on Consumerism Commentary.

The one thing Flexo points out that I didn’t is:

Since the purpose of the calculation isn’t to compare yourself with others, it doesn’t matter what you choose to include as long as you’re consistent each month, and the numbers are meaningful to you.

It is this consistency over months and years that will help you to track your progress as I have done since 1997. Obviously, life changes, houses, cars, families, etc. all change too. So it’s likely that you will have to make adjustments as you go along. That is only realistic, but the changes should err on the conservative side of both assets (discount realistically) and liabilities (overestimate realistically).

 

For example, you purchase a new car and decide to list that as an asset AND a liability (for the loan). It may hurt you to know that since you drove that car home, its value has declined noticeably. You should value it at a price that is conservative, not new. You will need to value it consistently as depreciating over your years of ownership.

Another example would be: you buy a parking place as we did, obviously your assets increase, and so do your liabilities (with the increased mortgage); you may feel that you know what your house is now worth. Take a conservative guess, and deduct 10% of the value for good luck. Then look at the liabilities: your outstanding loan – you may not have a monthly or even a quarterly figure, so take a reasonable average then add a bit for safety. You don’t want any surprises on the downside! This kind of double calculation is more prone to errors, so do the math consistently and carefully!

I always try to be consistent in my valuations over the years, but as things change, I do update the valuations from time to time. Sometimes, though, I like to create imaginary spreadsheets so I plug numbers into my spreadsheet for fun to see what it could look like! But I try to control myself: that part is just a fantasy!

Author: InvestorBlogger

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