Comments on: Mental Accounting In Net Worth Calculation http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/ A Vancouverite's journey to financial freedom. Fri, 21 Nov 2008 21:17:25 +0000 http://wordpress.org/?v=2.1.2 By: Enough Wealth http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-241 Enough Wealth Sun, 03 Jun 2007 12:23:16 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-241 I think there's already a perfectly good term tjat cam be used to define net worth sans your primary residence - it's known as "net investible assets". It's a pity that so many people feel free to "redefine" things to sui their own biases - it only adds to confusion. A worse example is how Kiyosaki redefines "asset" to exclude things that don't generate a positive cash flow. By this definition my stock portfolio went from being an asset when it wasn't geared into being a liability when I used a margin loan to increase the size of the portfolio and in the process pay more tax-deductible loan interest than is now coming in a dividends. This ignores the fact that over the long term I'm getting a lot more benefit from capital gains than I would have gained from receiving dividends on the smaller ungeared portfolio. Regards http://enoughwealth.com I think there’s already a perfectly good term tjat cam be used to define net worth sans your primary residence - it’s known as “net investible assets”. It’s a pity that so many people feel free to “redefine” things to sui their own biases - it only adds to confusion. A worse example is how Kiyosaki redefines “asset” to exclude things that don’t generate a positive cash flow. By this definition my stock portfolio went from being an asset when it wasn’t geared into being a liability when I used a margin loan to increase the size of the portfolio and in the process pay more tax-deductible loan interest than is now coming in a dividends. This ignores the fact that over the long term I’m getting a lot more benefit from capital gains than I would have gained from receiving dividends on the smaller ungeared portfolio.

Regards
http://enoughwealth.com

]]> By: FourPillars http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-242 FourPillars Sun, 03 Jun 2007 13:56:05 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-242 I couldn't agree more. Net worth is net worth! I don't personally calculate my net worth because I don't see any point to it. In my case we have an investment portfolio and a mortgage, and that's it. Even the current size of the portfolio isn't a critical number in the sense that I look at it in terms of how much future income it can provide. I couldn’t agree more. Net worth is net worth!

I don’t personally calculate my net worth because I don’t see any point to it. In my case we have an investment portfolio and a mortgage, and that’s it. Even the current size of the portfolio isn’t a critical number in the sense that I look at it in terms of how much future income it can provide.

]]> By: moneygardener http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-243 moneygardener Sun, 03 Jun 2007 18:41:23 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-243 Well put jungleguy, and I agree with you 100%. Well put jungleguy, and I agree with you 100%.

]]> By: Financial Jungle Guy http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-244 Financial Jungle Guy Sun, 03 Jun 2007 23:16:00 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-244 EnoughWealth - The honour is mine to see some Australian signals landing on my blog. Welcome to Canada. I've read about Kiyosaki, but never read any of his books, except for a quick glance over at a book store. FourPillars - I'm with you. I'm more interested in cash-flow as well. However, I do compare market values in the interest of swapping the underlying asset with another one that has a better a income profile. EnoughWealth - The honour is mine to see some Australian signals landing on my blog. Welcome to Canada.

I’ve read about Kiyosaki, but never read any of his books, except for a quick glance over at a book store.

FourPillars - I’m with you. I’m more interested in cash-flow as well. However, I do compare market values in the interest of swapping the underlying asset with another one that has a better a income profile.

]]> By: The Financial Blogger http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-245 The Financial Blogger Sun, 03 Jun 2007 23:48:15 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-245 Hi FJ, I don't think that my house is an asset as it doesn't produce income and require monthly cash flow to maintain. However, when it comes to calculate my net worth, I use the regular definition of asset. Your net worth should represent what you have if you sell everything and pay off all your debt in one day. Cheers, FB Hi FJ,
I don’t think that my house is an asset as it doesn’t produce income and require monthly cash flow to maintain.

However, when it comes to calculate my net worth, I use the regular definition of asset. Your net worth should represent what you have if you sell everything and pay off all your debt in one day.

Cheers,
FB

]]> By: Flexo http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-246 Flexo Mon, 04 Jun 2007 06:22:06 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-246 FB: Your house in an asset whether you choose to think it or not. Whether it produces income is irrelevant. The regular definition of "asset" is the only definition. But you're right on the money about net worth, just like Finance Jungle Guy. FB: Your house in an asset whether you choose to think it or not. Whether it produces income is irrelevant. The regular definition of “asset” is the only definition. But you’re right on the money about net worth, just like Finance Jungle Guy.

]]> By: money market savings account http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-247 money market savings account Mon, 04 Jun 2007 09:06:58 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-247 I agree they redefine without thinking looking at the whole picture I agree they redefine without thinking looking at the whole picture

]]> By: ThickenMyWallet http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-248 ThickenMyWallet Mon, 04 Jun 2007 16:25:34 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-248 I agree with your analysis. I suspect people mis-read Kiyosaki (who simplified what an "asset" is to prove a point) and blured the lines between a statement of cash flow and balance sheet statements. Law of unintended consequences one supposes. I agree with your analysis. I suspect people mis-read Kiyosaki (who simplified what an “asset” is to prove a point) and blured the lines between a statement of cash flow and balance sheet statements. Law of unintended consequences one supposes.

]]> By: Imputed Rent from an Owner-Occupied Home http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-251 Imputed Rent from an Owner-Occupied Home Mon, 04 Jun 2007 23:37:30 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-251 [...] Jungle wondered in a recent post why some people leave out the value of their home from their net worth statement. A common reason [...] […] Jungle wondered in a recent post why some people leave out the value of their home from their net worth statement. A common reason […]

]]> By: Financial Jungle Guy http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-253 Financial Jungle Guy Mon, 04 Jun 2007 23:58:11 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-253 Dear readers. Hold on to your seat. Canadian Capitalist had just dedicated <a href="http://www.canadiancapitalist.com/2007/06/04/imputed-rent-from-an-owner-occupied-home" target="_blank">an entire post to this article</a>. It’ll be ugly. It’ll be rough. There’ll be a storm raining with hits from CC’s website; pushing the limit of my little blog. If you don’t see me responding for a while, it’s probably because I’m busy running the hamster wheel in the back room. Dear readers. Hold on to your seat. Canadian Capitalist had just dedicated an entire post to this article. It’ll be ugly. It’ll be rough. There’ll be a storm raining with hits from CC’s website; pushing the limit of my little blog. If you don’t see me responding for a while, it’s probably because I’m busy running the hamster wheel in the back room.

]]> By: Josh Mullineaux http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-262 Josh Mullineaux Wed, 06 Jun 2007 04:02:04 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-262 I fully agree one should take the equity in his/her home into account for totaling net worth. However, I would calculate networth = assets - liabilities. Using your example, Brother A with 200k portfolio + 300K in equity in his home would have 500k in assets with 100k in liabilities. Therefore, net woth would equal 400k. So, when adjusting asset allocation between the portfolio and the home, the balance sheet will adjust accordingly. I would add one more concept however: housing (at least in the US) over the last 20 years has averaged roughly 5% and a well diversified portfolio is probably doing 8-12%. Great Post! -Josh I fully agree one should take the equity in his/her home into account for totaling net worth. However, I would calculate networth = assets - liabilities. Using your example, Brother A with 200k portfolio + 300K in equity in his home would have 500k in assets with 100k in liabilities. Therefore, net woth would equal 400k. So, when adjusting asset allocation between the portfolio and the home, the balance sheet will adjust accordingly. I would add one more concept however: housing (at least in the US) over the last 20 years has averaged roughly 5% and a well diversified portfolio is probably doing 8-12%. Great Post!

-Josh

]]> By: By The Numbers - Part 3: Networth | Cheddarblog http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-530 By The Numbers - Part 3: Networth | Cheddarblog Tue, 14 Aug 2007 02:22:36 +0000 http://financialjungle.com/2007/06/03/general/mental-accounting-in-net-worth-calculation/#comment-530 [...] at FinancialJungle.com the author makes the case that new definition for networth does not include the primary [...] […] at FinancialJungle.com the author makes the case that new definition for networth does not include the primary […]

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