There is always some debate about what should be include in one’s net worth. These are the accounts I include.

Assets:

  • 401K Account
  • IRA Accounts
  • Brokerage Accounts
  • Checking Accounts
  • Savings Accounts
  • Real Estate

Liabilities

  • Mortgage
  • Students Loans
  • Credit Card Balances
  • Deferred Tax Payments

What I purposely don’t include are personal possessions including my car. I don’t have an expensive art collection or such so my personal belongings are probably worth less than 5,000 including the car when all totaled up. There are two reasons why I choose to not to include personal possessions. In general the value of personal possessions are scattered across a wide range of items, making it difficult to easily liquidate everything. So if I were to even mark everything at fair value, it’d be highly unlikely I’d be able to get fair value for the items in short amount of time. The other and more important reason I don’t include personal possessions is purely because they are personal items I don’t own furniture as a financial asset. I don’t buy jewelry (actually I don’t buy jewelry at all) thinking that I might resell at later date. I could make the same argument for my home (if I actually lived in it), but given the sizable value tied up in a home, it’d imprudent not to include it at all especially since the mortgage is included as a liability. However, I do believe it’s important to mark the value of real estate conservatively. I’ve marked my condo at cost even though it’s increased some in the 4 years since I’ve brought it. I think it’s best to update real estate values up only when there’s more than 10% increase or decrease. Anything less than that is really speculation on what the property will sell at.

Personally much of my net worth is tied up in my retirement accounts, 401k specifically. While I account for the deferred tax liability, I don’t account for any prepayment penalties that I might incur if I needed to access that money. In the future I might further discount the value of my 401k, and IRA accounts by whatever penalty I might incur to access the money. The more I think about, the more I think I should. Back when I wasn’t fully vested in my 401k, I didn’t include the unvested portion if my net worth calculation. In effect I’m not fully vested in my 401k and IRA until I turn 59 1/2. I plan on waiting till that age, but I should value the account at what’s actually available to me at my current age by including the 10% penalty as an additional liability.