We Reached a Net Worth Milestone, But Does It Matter?

by Kevin on September 4, 2009

As a general rule I try to avoid sharing concrete personal financial information for my wife and I. I don’t like to share this information because I don’t believe it is relevant to the discussions we have on this blog.

At the same time I don’t want anyone to think that I’m hiding anything. The conspiracy theorists out there might come to the conclusion that I don’t live what I write… that I’m a spendthrift, I’m in debt up to my ears, or I was born with a silver spoon in my mouth (none of which are remotely true).

I’m guessing these thoughts have likely never crossed your mind and I’m just a paranoid blogger.

Taking all this into consideration I’d like to share a personal success story with you.

We’ve Achieved a Six Figure Net Worth

That’s right. I did our budget at the end of August. I wait until the first of the following month to update our net worth information so that our retirement accounts have a chance to update from the previous day.

And at the end of last month we finally reached a six figure net worth. We can stake our claim, officially, in the “we have more than we owe” territory.

While this achievement definitely gives me the warm fuzzies let me now walk you through why this really isn’t that big of a deal.

Should You Track Net Worth?

This is a question I have struggled with ever since we started tracking our net worth in December 2007.

Net worth is essentially an equation. You subtract all of your debts (credit card balances, student loans, mortgage, etc.) from all of your assets (your home, cash in the bank, retirement accounts, etc.). If you do the math and you have a positive number… congrats. You have more assets than debts. If you have a negative number you have some work to do because your debt is greater than the value of everything you owe.

That is a simple definition, but it begs a lot of questions:

  • Should you include your home value? House prices fluctuate all the time and it really doesn’t matter until the house is sold.
  • Should you deduct realtor fees from home value? Unlike small items that you could sell for cash in a garage sale selling a home costs you money.
  • Should you include the current value of your vehicles?
  • Should you include your untouchable retirement accounts? You would pay significant penalties to cash out your 401k, for example.

There are a lot of other questions, but that is a decent sampling. And considering those questions the way one person tracks net worth can be completely different from the way the next person does. Your big number may mean a lot more than my big number or vise versa.

It just isn’t an easy metric to use because it isn’t standardized.

How We Track Our Net Worth

I take all of our assets and liabilities into consideration including our home, retirement accounts, and vehicles. I take into consideration loans to acquire those assets like our mortgage.

We don’t track the “little” things — like a majority of the items inside our home. That would be too lengthy and difficult to track. (Honey, the couch’s value has dropped another 3.4% this month.)

I also do not take into consideration potential selling costs if we had to liquidate all of our assets. I don’t do this partially because it is hard to tell how much it would cost us to literally sell everything we owned. I’m sure it would be significant especially considering likely realtor fees of 6%.

These costs can severely dampen net worth especially if a large chunk of your net worth is tied up in your home.

What This Milestone Really Means

Reaching a six figure net worth is less an enormous thing to be proud of and more a symptom that the financial plan we have in place is working. It’s like getting a good report from your annual physical.

Here is why our net worth is growing:

  • We are spending significantly less than we earn
  • We are saving for multiple goals at the same time (paying cash for vehicles in 3-5 years, future kid expenses, future kid education expenses, retirement, etc.)
  • We are paying down our second mortgage very quickly and this is, of course, having a big impact on our net worth
  • We have no consumer debt and thus avoid paying high interest costs

I’m proud that we’ve hit this big number. We grew our net worth 3.08% in August . I would guess about half of that is due to investment growth. Since December 2007 we’ve grown our overall net worth 74%. (Can you tell I like numbers?)

But again, we haven’t won the lottery. You could change the way we track several things and drastically reduce our net worth. If I had to guess you could drop the number by at least 30% with just a few changes.

We’re not popping champagne corks or anything like that. Not yet. Champagne is not in the list of goals…

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JoeTaxpayer September 4, 2009 at 7:42 am

Congrats on this first milestone.
I look both at this total number, but am more in tune with my number minus the full house value. In other words, if I sold off stock or depleted savings and paid the house in full, what I’d have besides the house. This debate of whether to include the house at all is ongoing, and like most things, ‘it depends.’

Ricky September 4, 2009 at 11:14 am

I say it definitely matters! No matter how the numbers add up, it is a big deal for sure. Kudos to you sir!

Roshawn @ Watson Inc September 5, 2009 at 12:08 am

I think that this is worth celebration regardless of the method of calculation. Congrats!!!

fio bivens September 5, 2009 at 7:43 am

Congratulations! You are one of the financial bloggers I follow for inspiration, as I strive to be debt free! So, a celebrating moment for you is a celebration moment for me ! A ways to go yet, have made great strides in last 15 months…have more than I owe, but net not quite there yet. I thank you for sharing your experiences, and thank you for sharing your ‘feel good’ moment!

eric_wan September 8, 2009 at 8:56 am

Great action!—-starting with the end in mind! I always laugh when the term “goal” comes up as it seems to have such a negative connotation to many people. I’ve started to use “dream” instead—what’s your dream?

and, yes, include the house and retirement accounts. If you had to liquidate those would be counted too, so for practical purposes yes, they’re part of the picture. I wouldn’t likely include realtor’s fees though—I mean, you’re obviously a math junkie, so if you wanted too, cool, but what if you did ‘for sale by owner’ or something? so far down the road that it’s hard to pin down I’d think.

regardless, kudos—wanna run for Congress?? ;]

Cat September 8, 2009 at 3:20 pm

Congrats! My net worth goal is “any positive number…” you should definitely be proud of what you’ve accomplished!

Steve September 8, 2009 at 6:44 pm

Congratulations on meeting this great milestone! It’s got to be a great feeling, and it’s one I will be aiming for. Thanks for the example of living in a way such that this has become possible.

Kevin September 11, 2009 at 10:43 pm

Thanks everyone… pretty excited but keeping our eyes on the prize at the same time. I look forward to hearing your success stories as well!

svana faiga September 1, 2010 at 10:35 am

hi,
astrology said believing in yourself cause you know you have net worth when others don’t is part of the picture. there are just situations where places i
have lived are now 13x a day what actually i could afford in $$. Yet it’s worth always going home. Yet when you pay this much it limits the time of the usage and also the type of sharing,portion your going to do. It takes alot of courage to ask what you need. I got housing w/ my dad and then lost it when he died. i also met a lot of opposition which lowers the belief others have of you and upteen unrealitys after. that is if we had moved in before he did,i would get 25 more days to stay in a place than i have now. /There are still improvements sometimes,cause there is no place like home- wisdom of dorothy wizard of oz. Others put a person down if they are in this position. Like your fellow creature gets 23 more days to stay in his place where you got only 2 days i nearly pay out entire month om 2 days,this is not the tenants fault the new greed in real estate;this is like you really were riding the tornado. When others are getting 25 days of living space to the equvillant of 2,this causes huge difficulties. You pack 2x one day,rest the next pack 2x the third day,look for an item and now you’ve packed 5x in 3 days,and in fact might even need to pack and repack the entire week,now it does not end,no end in sight; the hardship of a guy who moves things for a living knows this reality. Only difference someone pays him for it. So you have to start some kind of system to relegate that to yourself,cause no matter what’s said and done you are worth the net work. And i’ve had many of these men say to me,no way jose i am not going to break my back for anyone so i get at least $20 a hour for the manual labor. The downtime of moving things the aftermath is real,when your body won’t even move and your in a lockdown position for days and the extra medical it costs is not worth it. Then where are the roger dodgers? Like a girl said he used to help me now he’s a wimp. There’s no way to handle this heavy duty stuff constantly without a strong male support system and there are many in this position that have not had the meetings yet. So look i am going to have to charge my friends,etc even to see me for a few hours. That’s share and portion. Yet i am always the worth it for what i give back, space wise quality,air quality,spirtually and even materially. I may only have to restrict this to 1 person. Cause who is given time rightfully in a situation like this. LIke i wondered hey why can’t i bike 4x in 3 days. 1x the first day,[cause the check in shortens the day,2x the next long day,then 1x squeezed in before you leave. No,time does not work like that. To do it that way the god system is you got to be given a week. Time is this precious. You know it’s like the hair stylist,who says i can’t give you that short hair cut,because your hair is just not long enough. You have to have that extra to work with time reasonably. Cause things take as long as they take which is a lot more than everyone putting a squeeze on your time with a $ sign. Like the lady said what they expect from you,the innocent,is way way way too much and you better speak up about it. The karma effects the retribution effects it will eventually have if everyone don’t do their part. And those who use real estate to just get rich are going to one day pay for this sin. Cause home and places are places for persons,not just buy and sell. Why don’t these persons get rich in a legitimate way not on ruining others persons frugality,etc. LIke sell a million jillion safety pins,breath mints or whatever,the honest old fashioned way. Get a factory or something. Because even though it sounds like you could bike 4x in 3 days,when that’s all your given 3 days due to the increase of rents it does not work out,you are faced with that time has gone into a compression chamber and you just can’t handle everything and anything in 3 days like your rushing in and out of a subway. [i use this comparison cause those doors shut mighty quick],new roommates,bike rides,understanding,even 1 conversation which last about 20 minutes has to be given. This is so unfair to force a superman into every person who has hit this equation. [actually ask and expect more than superman could do] Yet traveling to where others have had great advantage- and when these persons have not faced these tradgedys;there are also huge setbacks with them- like they got it good financially yet would you really even want to stay with them- dusty bins,bad air,environmentals hazards etc. so many of these luckys have. So yes i am worth the favor of a world that has to adjust to don’t be selfish. And understand don’t put 13x the weight,difficulty and financial responsibility on 1 person. So now i got a michigan law. Is it anything like Murphys?

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