[This is a scheduled post; I’m away until August 6, when I’ll do an end-of-July summary.]
Net worth is “duh” levels of simple: take your assets, subtract your debts, voila. Except if you overthink it, and of course I overthink it. I have a Ph.D., it’s basically my job.
A major point of contention I see — and don’t have to deal with — is with real estate. Nobody actually knows what their home is worth (until they try to sell it), so trying to calculate equity with precision is tough. Meanwhile, it’s pretty clear what the mortgage is!
Many people include the presumed resale value of their cars. I did that when I first started using mint.com last year, and if I’d kept up with it, I’d have been in “positive” territory a couple of months earlier. But ultimately I decided that the car wasn’t really an asset in the sense that I was comfortable with. If tough times hit, I still wouldn’t sell it; I need it for basic life stuff. So just like I don’t include the value of my one nice piece of jewelry, or my computer, or a few other things that I theoretically could sell but never would, I don’t include the car. I might feel differently if it weren’t ancient and cheap. That is, if I owned a new-ish car, I might list it because I’d be able to trade down if I needed to. But really there’s nowhere to trade down to, given my 14-year-old car.
If I had a house, though, it would always be theoretically sellable for me if I lost my job or etc, so I probably would count my best guess at it in my net worth.
The other sticking point to me is: should I count cash that I know is about to disappear? I generally calculate on the last day of the month, that is, the day before I send in my rent check. My budget suggests that I’m probably going to spend about half my income in any given month. I feel like a more honest net worth might include only the content of my savings/retirement accounts and ignore the money dedicated to daily expenses. However, I am really lazy, and sorting this out would take a lot of work!
So, the end result of my net worth calculation is this: I take the contents of all my checking/savings accounts (I have a slew of them) and add that to the total of my retirement account. Then I subtract my credit card debt (and used to subtract student loan debt. Hey, doesn’t that “used to” sound nice?). It might not be the most accurate number, but it feels pretty close to what’s right.
Do you guys do something different?