As I write more posts on this blog, I start to realise that the content becomes more relevant and applicable the more honest I get with our personal finance numbers. It’s one thing to write about how to save more, how to spend less and how to invest more but if I don’t actually write about the actual impact of these strategies on our net worth, it’s difficult even for myself to see if they work.
I doubt we will ever fully disclose our net worth but I have already been providing snap shots of our portfolios & asset allocation and dividend & interest income. The only main piece missing from the blog is our liabilities and without these figures, it’s not possible to calculate our net worth. In the spirit of additional disclosure, I have now included a net worth page.
It summarises our assets held as investment, retirement and cash. More importantly, it shows the following liabilities.
Mortgage
I mentioned in my previous posts that we don’t view our apartment as an asset since it does not generate any income. However, we do view our mortgage as a liability since we have to make monthly principal and interest payments. The issue is that just disclosing our mortgage as a liability without the apartment value as an asset causes the net worth figure to become overly negative and it loses accuracy as a result.
To improve the accuracy of our net worth figure, I have used an amount for the mortgage that is calculated by taking 50% of the market value of the apartment minus 100% of the principal value of the housing loan. In a way, I have budgeted for a 50% drop in the housing market prices. It’s a conservative approach but I rather understate than overstate our net worth.
Credit Cards
This shows the billed and unbilled amounts charged to all of our credit cards at the point of updating the net worth page. Although we pay off the full amounts of our monthly credit card bills, all outstanding unpaid amounts should still be disclosed as liabilities. Given how we charge most of our spending to credit cards, this amount is a good estimate of our monthly expenses on transport, telco, groceries, dining, entertainment and travel.
Tax
We pay our income and property taxes to IRAS using the 12 interest-free monthly instalments plan. It improves our cash flow position but sits as a liability on our balance sheet consequently. This amount should reduce over the year but increase once we file our taxes at the end of each year.
An asset is an asset. Whether we need to service the loan or not. whether it is net positive or negative, I would get the market value of the property and minus all the outstanding loans. Property Market value may change, so does your networth. We are just reflecting reality of our networth. That's the whole idea.
Hi TFS,
Haha, for networth calculation for housing, I just take 0% of the market value of the home and 100% of the debt lol
I agreed with la papillion13 April 2016 at 11:58
I do the same for my net worth. Zero value for residential home but serve as asset of last resort when run of money.
The stricter definition of networth shouldn't include residential property simply because you can't sell it. (Sleep in nparks instead?)
Furthermore, if one needs to sell it, it's probably in an urgent need and applying market value wouldn't be a fair assessment anyway.
Lastly, having a higher networth due to increase in market prices over the years would not reflect an accurate picture of wealth building (as you are likely to sell to realise the gain)
Hence, There should be a distinction from common accounting definitions for companies and those that apply to individuals.
It's a strategic reserve!
I agree with all of your comments, which is why I have gone with 50% instead of 100% or 0%. Technically, I should use 100% of the asset value. However, it's a personal preference to understate the value of our apartment especially when we live in it and don't derive any income from it. Using 50% of the apartment value should suffice for now but I'm open to changing it as time goes on!