Do you include pensions in your net worth? How about art, insurance, homes, cats, baseball cards?
These are some of the most popular questions I get asked, outside of “Is J. Money your real name?” (Yes) and “how did you get so damn sexy??” (I don’t know, it just comes natural! ;))
So today I thought I’d list out my personal feelings on it, and then everyone can chime in and let me know if they think I’m a big fat idiot or not. Although the reality is that we’d all be wrong, because:
THERE IS NO WRONG WAY TO TRACK IT!
Okay, well there is – you can’t call cash a “debt” or a loan an “asset” – but everyone here is smart enough to not mess that up, so what we’re really talking about here are all those *gray areas* that come into play. The stuff that might or might not belong in your wealth, but you just can’t tell and want an extra set of eyes on it.
So today, I’ll be your eyes :) And then you can take what you want from it…
Ultimately though, your net worth is only for you and your own goals/motivation, so as long as your tracking aligns with what you’re trying to get out of it all, then keep in mind you’re doing just fine!
Alright, so what belongs in your net worth and what does not?
Here are my thoughts… And keep in mind that I personally track my net worth to get an *overall snapshot* of where all my money/major property is at any given point in time. I don’t care about liquid vs not liquid assets, or taxable vs not taxable, or any other more specific ways to track wealth (cash flow/retirement/etc – those are for other spreadsheets). There are a thousand different ways to track this stuff, so again go w/ the route that makes the most sense for your situation!
What I think belongs in your net worth and what I think doesn’t:
Cash: Yes. Cash = money = wealth = asset!
Investments (stocks, bonds, cds): Yes. Investments are literally investments!
Retirement Accounts (401(k), IRA, TSP, SEP, 403(b)): Yes! Now it may be worth noting which accounts are pre-tax and which are after-tax, as that will certainly matter as time goes on – especially for cash-flow/retirement purposes, but rarely do I see these guys not listed in at least *some* form of wealth tracking reports.
Stock Options: No. Options are worth diddly unless executed. Once you do execute them, however, then yes – all that $$$ goes right into net worth unless you blow it all on candy and gum drops (what are gum drops, btw?).
529 College Savings Accounts: Yes/No. It is technically $$$ you own, but it’s also earmarked for someone else to use later (usually, though you can also set up 529s for yourself), and at some point it’s all going to go out the window. So you can either keep it in your net worth now for an overall big-picture tracking, knowing its’ all going to be dumped out later, or you can just keep it out from the start, and then if you recoup any of it down the line just add it into your net worth at that point.
I used to include it in my own worth when we first started investing for Baby Penny, but after a few months (and asking y’all about it) I eventually moved it out as I just felt funny about it. I still track it though as you see in each net worth report, but I do so *outside* of my net worth section and just add it to another part of the spreadsheet since it’s still a big chunk of money to be watched over. So either way I think you’re fine with this one.
Income: Nope. It doesn’t matter how much you make or don’t make, what matters is *where it all goes* every month. If you use some of that income to save or invest or pick up property, then it’ll naturally be reflected in your net worth report once you do that! But if you spend every penny of it, then it doesn’t add a thing to your net worth, does it?
Pensions: Nope/Yup* After getting a lot of feedback from y’all and learning more about these magical “pensions”, I’m updating my answer here to include a tentative “yup” as well ;) Original answer is below, along with updated notes afterwards:
Nope – I treat it the same as “income” above. Although, if I’m being completely honest here, I’ve never really looked into pensions to see exactly how they work because I’ll never see one in my day! (Millennial alert!). So definitely wise to seek outside consult on this one… If I’m understanding it correctly, however, it’s just another form of income like a paycheck would be, which in that case would be treated the same way as above (i.e. if you save any of it it’ll be reflected in savings in your net worth, but if you spend it all then it doesn’t!). All that said though, of course pensions are AWESOME and should still factor into your financial/retirement planning, it would just go into a different spreadsheet in my opinion.
Any readers here wanna chime in though with thoughts? Do you include your pensions in your net worth? If you do, how exactly do you track it? Just estimate what it’s worth as one lump sum?
*Update: I’ve since learned that many plans allow you to see your “present value” for pensions, meaning that you know how much you’d get if you were to cash out today and get a lump sum (these are “defined benefit pensions”). So in that case I think it does make more sense to include vs *future* values or cash flows, provided it’s all vested and truly yours. I’ve also heard that some people pay into their pensions (which are “defined contribution pensions”) and thus will count *those* amounts only into their net worth which I can also get down with (again, provided it’s a guaranteed pay out).
So while my original thoughts were more based on the future *income streams* which I still wouldn’t include in net worth, I totally see how including any of these two routes above would make more sense and would probably do the same myself. And either way, it’s ALL good to track for retirement planning purposes whether it’s included in your net worth or not!
Update #2: Here’s a good post that covers tracking pensions much better by fellow blogger, Financial Samurai: How Do I Calculate The Value of My Pension? Full of pretty charts and all!
Bonuses/tips/lottery winnings. Nope Nope Nope. Unless it’s converted to savings/investments as in the above, none of it matters!
Houses (that you live in): Yes. This one is a healthy debated topic in our industry, and I can see both sides, but to me if you own something that’s worth/costs hundreds of thousands of dollars and is one of the biggest expenses of your life, then yes – it belongs in your net worth. ESPECIALLY if there’s the other side to the equation here, i.e. mortgage(s)!
I’ve seen people list one side and not the other, but to me that totally tilts it either super optimistically or super conservatively, and in either case the balance is just way too off for my taste. A home may not be a true investment in terms of *earning you money*, however, it’s still a pretty huge piece to your financial puzzle. It would be hard to avoid when factoring in all your $$$.
Houses/property (that you don’t live in): Definite yes! Wherever you side on the home or no home equation, everyone can pretty much agree that rental and investment properties most definitely belong here. In these cases they all operate as mini businesses that take in income and spit out expenses, and again you need both sides of the equation here to fully appreciate the bigger picture.
Cars: Yes. An even hotter debated topic than homes, however again – large expenses/values to me should always be included, as well as their very large expenses on the other end. Out of everything I track though, this would be the one section I could see cutting if there was a gun to my head. (Although in that case I’d just give the gun holder the damn car!)
I should mention a word on *valuing* here.
While it takes 3.2 seconds to dig up your loans on any car or house, it’s a whole other ballgame with how you value them. Some people like to use a specific site or group of sites to formulate a good estimate, and there’s typically a slew of different ways out there, but as long as you keep *consistent* in your tracking every month it should be just fine.
I use KBB.com for tracking my cars’ values, and when I used to own a home I’d literally just ask my realtor and have him run comps every 6 or 12 months or so. I always found Zillow to be wayyyy too chaotic and unrealistic for my neighborhood, so I just went straight to the person who I felt could give me the best info. So while cars were updated monthly, and still are, my home was always bi-yearly or just once a year. You never really know its true value for sure though until the day you sell!
(And interesting to note, my realtor was only off by $500 by the time we sold our place… And of course I went through him for hooking me up with the info over the years ;))
Stuff in your house (furniture, clothes, decorations, toys). Nope, nope, nope. Smart to know roughly what you own and its general worth for reporting/insurance reasons (a good idea is to walk around the house video recording everything once a year!) but in terms of net worth specifically, I always cringe when I see this being tracked. Usually because the #’s always just seem so inflated as if they’re listing the *purchase* price of their things vs the actual *value*. Just because you paid $1,500 for your couch, doesn’t mean it’s still worth that!
So if including your things is important to you in net worth, I’d just be more conservative and do your best to put a more realistic value on them… Ask yourself what you’d list them on Craigslist or eBay for?
Art/Collectibles/Coins/Baseball Cards. No. Unless you’re hoarding some Picassos or Mickey Mantles or the 1783 Nova Constellatio “quint” silver coin (the very first U.S. coin minted!), it’s probably safe to keep them out of the wealth tracking here. Again, except for insurance purposes. It doesn’t change how valuable any of our stuff is, just that $$-wise a lot of this doesn’t “count” until it’s sold and you have the $$ in your hand. And that’s coming from someone with a hefty rare coin collection!
Jewelry. Nope. I treat it the same as “stuff” or “collectibles.” Unless we’re talking big bucks here ($20,000? $50,000?) I prefer to count it later once/if it’s sold… *if* being the key part.
Insurances. Nope. At least not term life insurance and other similar non-fancy-investment-mixed-plans that people seem to get ripped off by… Just like my desserts and vegetables, I prefer to keep my insurance and investments separate ;) But we already covered that in another post… In terms of net worth inclusion, again unless this pays out and you get gobs of cash that you then put into savings or investments or property, I don’t like to include it here.
Businesses/Blogs. No. This one is probably the trickiest of them all, and one that I can see both sides of. But, personally, I like to keep my business stuff completely separate from my personal stuff. This includes bank accounts, property, taxes, stock options/ownership, debts, you name it. Until something activates and it crosses over into my personal finances (paychecks, funds from selling a site/business), it all stays on opposite sides of town.
It’s not as nice as having everything in one spot, but to me it feels much better keeping my two lives separate. I’m also someone who enjoys “nice surprises” every now and then, so I’d much rather see an increase in my net worth *all at once* when things activate over, vs. it slowly growing over time. And especially with valuations on your businesses, which can fluctuate daily! (For the good or bad!)
This is how I see it anyways, but would love to hear thoughts from other business/blog owners on this? Do you all keep your businesses in your net worth or also separated out?
Quarterly tax money. Nope. This is another tricky area as your taxes can mix both personal and business worlds together, but over the years I’ve tended to just separate this out under my business accounts and pay all my quarterly taxes from there. Initially I tried accounting for it in my net worth for the first few months of self-employment, but wow was that miserable! You had three months of this account (savings) piled up and looking pretty, and then BAM – quarterly payment time and it all goes down to $0.00! The worst! :) A couple rounds of doing that and I was convinced it’s better to just keep it all separated vs. watching the yo-yo over the months, haha…
Loans: No. This is a strange one to put here, but seeing how when I first started tracking my money I used to include it myself, I figured I’ll just throw it out there in case others are doing the same thing… Don’t! While someone may *owe* you money and you’re hoping/convinced that you’ll get it back later, you never really know and better to count your chickens only after they’ve hatched. I think I’m 3 for 4 out of all the family loans I’ve given out of the years, but honestly if you can’t afford to lose the money you probably shouldn’t be loaning it out anyways.
(I’ve heard people say that they only “gift” people money when needed vs loaning it, and I always thought that was a cool – and selfless! – way to help someone :) Again, provided you can afford it!)
Alright, I think that hits a lot of the gray areas?
Let me know if I missed anything, and I’ll go back and update this…
Also keep in mind – mainly when you’re trying to compare your own situation with others, because let’s be honest, we all do it! – there’s a TON of other variables that come into play with why someone might have a smaller or larger net worth than someone else.
- Age of the person
- Whether they’re married or single (and if they’re tracking it separately or combined?)
- How many kids they have
- Where they live (ie. high cost of living or low cost of living?)
- When they had their financial *epiphany*
- Did they inherit anything?? (Nothing wrong with that, it’s awesome!, but of course it can affect your stockpile)
- Their profession/goals/dreams
And lastly, a quick note which hopefully y’all already know by now:
Net Worth ≠ Self Worth
Yes we talk about $$$ every day here (because we’re a money blog!), and yes we obsess about numbers and our goals and dreams and being able to retire early so we can do whatever we want to in life (the whole point of money), but at the end of the day our net worth is only an indication of our dealings with money itself. Nothing else.
There are people with big hearts changing the world who are dirt poor, and then there are millionaires and billionaires who are complete dirt-bags (look at that play on words!). So do keep paying attention to it all, but also remember that it’s only one part to the equation of life. The rest is, well, actually living! And a good life is the best reward of all, right? :)
Now tell me what you think about all this! What did I forget or miss the mark on?
I’m hoping to make this THE post that I share with everyone in the future anytime I’m asked about this stuff again, so leave as many thoughts and opinions as y0u’d like as it’ll all help generations of future readers to come :) No pressure!
Thanks for reading the blog and making our community great.
PS: Cats. No, cats do not belong in your net worth.
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!