Friday, December 01, 2006

What My Net Worth MIGHT Be

Now that I own a home, I have entered the twilight zone of net worth calculation, especially given the circumstances under which I bought. How much is my home worth? How much equity do I really have? Is it worth more than I paid or less than I paid? Do I assume its price would change based on market trends in the past year since I signed the contract? Or from when I closed? Are overall trends in the market what is affecting my home's value, or might the neighborhood I live in not follow trends in the rest of New York City?
With all of these factors in mind, I could put my end-of-November net worth anywhere between $283,000 to $318,000.
Why the big range? The worst-case scenario assumes my condo is worth 5% less than I paid for it. I don't really think that's the case. In today's papers, they reported stats that had New York home prices as being 0.33% lower than a year ago. The high end of my range assumes that my condo is worth the appraised value. What do I really think it is? Based on my own observations of the real estate market and prices in my area, and taking into account some of the extra closing costs you have to pay when you buy a new condo from the sponsor, etc., and, well, just gut instinct, I would put my net worth at about $308,000 right now.
The good news is that whichever way you calculate it, I think I'll exceed my year-end net worth goal of $275,000. My closing costs were less than I originally anticipated, and I got the credit for having to re-do the floor, so that helped. But I will have some large expenses for furniture & household stuff in the near future-- they might not hit before the end of the year, but they were accounted for in my planning. If I spend the $5000 I had tentatively budgeted, I won't be as far ahead. And if my recent stock market gains evaporate due to worrying economic news, that would be another hit. But still, I'm feeling really good about how the year is winding up.

Writing these updates feels a little weird sometimes. I worry that it sounds like I just sit around counting my money and saying "yay, me!" But I guess I can't help it-- for all the planning and worrying I do, it's good to take a moment to be happy that it's actually working. And it's not about counting the pennies themselves, it's about the feeling of accomplishment, of being on a path to financial security, which is one of the building blocks of a larger kind of stability. I just want to be able to live a full, satisfying life (in the ways that money can and cannot buy) without having to rely on anyone else to do so. BostonGal had a post this week that captured some of my feelings about it-- for her, "self-sufficiency" is the key word in why she cares about personal finance. For commenters, "independence" and "choices" were the words. I think "freedom" might be the word that, for me, encapsulates all of those things.


Anonymous said...

How amazing that you now have that Real Estate line to add into your monthly Net Worth calculations! The value you set is a bit of a hazy science. I know for myself I pegged a value and pretty much stuck with it. I toyed with the idea of using Zillow for that number, but decided against it. Just pick a number your common sense agrees with and go on from there.

Thanks for the mention by the way - I like your word - freedom :)

Vijay said...

hello madame x,

i was just wondering how you added the banner on top of your page

Thank You
yours truly

Anonymous said...

I take the average of my tax assessment (probably low) and zillow (probably high).

Then I also look at my net worth minus the real estate (value and debt) to get a better idea of how well I'm doing with my savings rather than just how lucky I am getting with my house!

moneyforsmartpeoples said...

its great you have exceed your earning eastimate . probably you have greater financial planning

Anonymous said...

Congratulations for all that you have accomplished -- and for your future plans. I'd guess that a high percentage of people in their 30s and 40s are simply living from payday to payday, and either aren't interested in their financial situation when they retire -- or simply don't know how to go about setting up and adhering to a sound financial plan. One thing is certain: most people who reach retirement age either cannot afford to retire and continue working in some capacity to make ends meet -- or their lifestyle is seriously degraded. I think you will be fine in that respect. I would encourage you, though, at some point to take a close look at your stock market investments to make sure you are not exposed to 40% to 60% market declines that inevitably occur, particulary as you close in on age 50. You really don't want to have a $1 milion portfolio when you are 60 years old, and watch a market decline take 50% or more of it away from you. You're doing great! Keep learning as you go.

cheapstreet said...

It seems to me that you are aware of your purpose in accumulating wealth.
It's a goal, but not your identity. That's the important part I think.

Have you read "Money and the meaning of life", by Jacob Needleman? You may find it interesting.

Anonymous said...

You could use an accounting principle call "Lower of Cost and Market" (or LCM) to calculate your net worth. This is what companies use in their financial statements when calculating the value of assets (including investments but I think for net worth calculations that is going a little bit too far). LCM works pretty much the way that it sounds it works, you value an asset at either what you paid for it or what the market will give you for it, whichever is lower. It is a little bit difficult to figure out what the market will give you for real estate but usually after a couple of years your cost will be lower than what the market will give you.

Anyway, that is what I use in my net worth calculations for my house. I include home improvement costs in the cost for my house so I'm not using a 'pure' accounting method but at least it is a little bit on the conservative side.

Anonymous said...

I've worked in information management in real estate for years and Zillow is bad news. Its accuracy varies wildly. My parents recently sold their home in an affluent neighborhood and it sold for high $300's. The Zillow zestimate is *still* high $400's. I find it sad that Zillow hasn't "seen" the home sale for much less, despite it being publicly available information.

Tiredbuthappy said...

Perhaps I'm missing it, but do you have a breakdown of your assets on your site? I was just curious, because your net worth is so high and I was wondering if most of it is in your 401k or what. Just curious.

As for house value in net worth--I just use the purchase price (bought it 2.5 years ago). In my case it's probably extremely low, but I don't want to count my chickens. I live in an edgy neighborhood and I'm really not sure if the neighborhood is on its way up or down, so I don't really feel comfortable counting on a high value for my house. I guess the way my mind works, I'd pick a number, probably a low estimate, and stick to it. Then if you're really worth more than that you can be pleasantly surprised later on.

So if it were me I'd probably use your worst-case-scenario number, 5% less than the purchase price. That's what you'd have to pay a realtor if you sold anyway, right?

Even then, your net worth is nearly 300k!! Go you.

Madame X said...

TBH-- I use NetWorthIQ and that has a breakdown of the assets-- I sometimes include them in my monthly updates too, but this month I was lazy! But yes, retirement funds in Roth IRA and 401k accounts are more than half of my net worth.