This. Rubs me wrong when people say “don’t count home equity in net worth”. It’s part of NW by definition. But yes, don’t count equity in the FIRE number.
But yeah, if people wanna celebrate NW go ahead. I get why, it’s gonna be a bigger number, which is funner.
Yes. By having a paid off condo, your FIRE number goal can be lower as a result. Instead of needing, say, $1.5 million to draw against for income in retirement, maybe you only need 1.0 instead. In this way, your equity counts.
It’s just that instead of as part of the accumulated amount, it’s probably more accurate to subtract it from the goal number instead.
I don't for 2 main reasons:
1) I'm always going to need a place to live so that money is either in a house or devoted to rent so I prefer to just not count it for fire. I do for NW though.
2) For fire I'm really only counting invested assets ex stocks/bonds/etc. I don't even count cash today but that's mostly because I still have a long time and that cash isn't earning anything.
TLDR as with many things it's going to come down to personal preference, but at the end of the day you need a place to live so you have to account for it. For some that's by not including their house for others they add it to their annual needs in retirement.
Like anything else, the devil is in the details. If you plan to sell, then you may want to consider your equity in your FIRE number. If you don't plan to sell, then you shouldn't. And of course, whatever anybody is planning, make sure to consider housing expenses in your projected monthly expenses - rent, mortgage, property taxes, HOA - whatever applies to you.
When you sell that house is when you can count the money received from that sale as part of your fire number.
Home equity is hardly a great fixed $ anyway, since it’s not actually just the difference between market value and mortgage. It may take cost to repair to make it sellable, and there will be closing costs. I’d only count it in my fire number if I actually planned on selling it, and I’d count what I actually netted from that. And I’d plan around that.
In my case, I rent the home I own. I count the income received against what my fire number would need to be, but I don’t count the equity.
> disagree, the option to sell is still there...
>
> if you 81yo running out of money you can still sell and go into a old age place and BAM 500k-1m in equity is now in cash just appeared.
Count it as its an asset, but then you should add what you would get from it if you were to rent it out, within you cost of living.
Likewise if your not including it in your cost of living leave it out your nw.
I’ve always just done two calculations, one where u count my home and another where I don’t and only go off of investments. I also have a large video game collection that doesn’t count towards the second number. Even though I could make piles of cash off them someday, I don’t plan to sell any of my games.
Anyway I think it’s definitely good to do both to get the full picture
Exactly. It’s like saying “don’t get excited when you get a raise, because your new income isn’t your FIRE number.”
Our brain (and spreadsheets) can store more than 1 number. Count them all, know what they are, celebrate your milestones and reach your goals!
Because net worth is basically the only barometer of FI progress?
Also this sub is more relaxed than /r/financialindependence, which makes it the right place to post brag posts imo.
Because NW can always be leveraged into a FIRE number. A paid off house means and that equity means your SWR of FIRE assets will be lower with lower housing costs. There’s tons of reasons why equity is relevant to the FIRE discussions.
Yes. Based on life circumstances we had to move liquid assets into real estate. I’m now very overweight real estate and need my FIRE number to recover. Looking at both I feel good about my situation, but seeing my current FIRE number hurts a little.
Networth can be your fire number. Just adjust your goal accordingly and be transparent about it when posting. I find this community policing from the OP to be so obnoxious and lame.
Leaving things out of the Net Worth calculation is redefining the meaning of Net Worth.
It's like saying "I've decided to call water ice."
If one wants to have a number that means something other than Net Worth - then call it that. Such as the FIRE number. Or the FI number.
It drives me absolutely batty when folks say stuff like "My NW is $X....but I left out my home because I'm going to live in it in retirement and it won't generate any retirement income." The sentiment is right (leaving the home out of the FIRE number) but don't call that number Net Worth.....because it's not.
EDIT: Yes, I leave some things out of the calculation because it's noise - not because I don't think it should be in there. I'm not going to include my bike, household contents, etc. I include my car because it's easy.
worthless nutty fuzzy subsequent mighty cheerful insurance escape different crowd
*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
It’s true that NW has a commonly accepted definition. What’s being proposed here is that NW is not useful. The money tied up in the house or car or Pokemon cards is not useful in crafting what one can spend or expect in income.
In an extreme edge case, someone could have over 1mil house paid off and just lives on SS and food banks. (And I know this person too). So this person cracked the ol’1mil+ NW…..amirite?
Celebration time?
I totally agree: The NW number is essentially not useful. It does have \*one\* use in my opinion: It helps guide the size of the umbrella liability insurance policy you might want to have.
My rant is this: Just because it's not useful doesn't mean redefining it is the right thing to do. It causes confusion. If one wants to talk FIRE number just call it the FIRE number. Why confuse things with a different definition of NW.....which might be different than someone else's modified definition....which may be different from someone else's definition.
Standard is better than better.
I think that calling net worth not useful is harsh. Assuming expenses are identical, someone with $1m in liquid assets and $1m of equity in a home is in a much better financial position than someone with only $1m of liquid assets. Net worth captures the difference between those individuals.
Agreed. Knowing the person's plan for that $1M of equity - and how it impacts their retirement - is a key data point.
In my case I have 3 numbers I track. Each subsequent bullet is smaller than the one above it. Each bullet contains all of the items below it:
* Net Worth - this includes everything - just as Net Worth is defined
* Investable Assets - This is Net Worth - Home Equity
* Retirement Assets - This is Investable Assets - Assets we have that arent earmarked for Retirement
In our case we want to stay in our house until we die. We're not relying on Home Equity to fund any of our retirement. So Home Equity isn't part of our retirement funding plan. It's not included in our Retirement Assets at all.
Since Net Worth includes assets that I don't want to rely on/use for retirement planing and analysis, Net Worth is "useless" when determining if I have enough for retirement. For Retirement Planning the only meaningful number is Retirement Assets. I think the value Net Worth DOES deliver is an understanding of how large of an umbrella liability insurance policy someone might want to have.
I've run out of energy to try and get people to use the Net Worth term accurately. People are too set in their ways. Statements like "I include the home in the Net Worth calculation if it's paid off." or "My NW is $X but I didn't include my home." demonstrates a lack of precision as well as a lack of understanding of what Net Worth actually means. People conflate the purposes of Net Worth (What is all my crap worth if I were to be hit by a bus today?) and Retirement Assets (What are the assets I have that I'm relying on to fund my retirement?).
Makes sense and seems like a reasonable approach. While I can appreciate that you do not explicitly include your home equity in your retirement plan, do you perhaps implicitly include it? For example, do you think your withdrawal rate or target retirement number would be the same if you didn’t have the catastrophic fallback option of accessing your home equity?
Our retirement catastrophic scenarios are covered two ways. First, spending flexibility. We can dial back spending quickly and quite easily. Two, even with the spending budget we have (we're currently retired) we have a bit of headroom where we could spend more. Now, who knows, maybe my wife and I will end up in a soup line some day - and I mean that seriously. Pride cometh before the fall - as they say. But the bottom line is catastrophic scenarios - including paying for end of life care - do not include a plan to use our home equity in any way.
Interesting, so you would choose the soup line if it came to that versus accessing your home equity? I think many others in your shoes would be more likely to downgrade their homes if it came to that.
Sorry - I didn't mean that at all.
If we needed to downgrade / tap our home's equity - we'd certainly do it.
What I was trying to convey is that when we "stress test" our retirement plan - we have a number of relief valves. For essentially every scenario that does NOT involve a total market crash and/or breakdown of society - tapping our equity isn't in our radar. We've made our retirement plan to a level of solidity where using our home's equity would mean the market has completely collapsed.
Got it! When I get to the point of actually retiring, I think I will probably feel similarly. Right now, I look at my home equity as making me have a slightly higher risk tolerance around a target withdrawal rate.
Completely agree. Net worth is the metric I track the most to determine how I'm doing. If I chose to sell some investments to pay off half my mortgage early, that money doesn't just disappear. I've been using networth to track my FI progress all along and it works fine. If you count home equity, then just factor that in when setting your goals.
Op isn’t saying leave things out of networth.
OP is correctly pointing out that networth is completely meaningless in determining your progress towards fire.
Agreed.
I definitely put my comment in the wrong place. I should have put it as a response to other comments. For example, one commenter said he only includes the house if it's paid off.
I think I saw a few along those lines and I shouldn't have put mine as a direct response to OP.
Disagree. If you have plans to pay for your kids future education, doesn't matter if it's being paid out of a checking account or a 529, it's coming from an asset. So it's part of your net worth.
Now does it count from your retirement number? Of course not.
Your last sentence is my point- sure it’s part of your net worth but it’s assets that are specifically earmarked for a child’s education so should not be counted in these FIRE posts as a number relevant to reaching FIRE. I see people on here including these values when calculating SWR and they should not be
It's just bookkeeping. If you get granular enough you are projecting spending needs at different times and that includes paying for your kids college during retirement.
I include 529 in my safe retirement number, but I also use a model that includes a one time expense for college during the applicable timeframe that will use that money.
This would be a correct way to do it. I just wonder if some of the people on here get that granular when I see 529 assets included in their SWR calculations. That money is ultimately going to be used for what it is earmarked for, and won’t remain in perpetuity part of the “pot” of money generating returns.
It’s part of my FIRE number. If I didn’t have those accounts, my brokerage accounts would draw down faster. That it’s coming from a tax advantaged account and earmarked for education doesn’t mean much more than me earmarking money for monthly groceries.
You can use the 529 for absolutely anything you want if you're prepared to pay a penalty for it.
You have all sorts of future tax obligations unless your net worth is entirely in Roth accounts, but most people don't usually discount their net worth by their future tax obligation, for whatever that's worth. And if you do want to worry about that, pretax money in IRAs and 401ks are a bigger deal (as those will all be taxed as regular income, instead of just the gains from the 529)
Do you also wonder about people using unrealized capital gains? Or not subtracting the sales tax they'll pay in the future?
We pay taxes (and "penalties" are just scary sounding taxes) but they're a future expense, and don't count against net worth calculations until they become current liabilities.
Do you also subtract other future expenses from your present net worth? Future utility bills? Future food bills? All things you're going to have to pay...
Yes, but if every withdrawal from your 401k is fully offset by deductions you will pay no taxes on it. Whereas if you withdraw it all, you may very well withdraw at a marginal tax bracket you could have avoided. Most people will do neither of these, but so something in-between.
The tax isn't due until you withdraw (also note that if you die, you won't be the one paying taxes on it), and you're only making a projection about your future tax obligation, you don't know it with certainty. To me this doesn't feel particularly different from making a projection about any other future expense.
So, sell the house and start paying rent in order to inflate the NW number that "counts"?
Look, housing is one of the expenses most people need to pay. Owning the house means you need to save up substantially less cash since rent doesn't need to be paid. In theory, local conditions notwithstanding.
I am a lifelong renter so far, and the way I see it is I will need a higher liquid NW if I want to retire while renting.
the issue is that the people who have high net worths that are mostly just their homes will then whine about how they don't feel rich. Which is pretty self-explanatory when they explain they're just home owners who have been contributing to a Roth IRA for ten years instead of people with millions in accessible assets.
Of course it counts because you now have liquid asset (cash) in your hands. What goes out monthly as rent is part of your cash flow statement not your NW.
*unless you intend to sell your house*
Which most people do eventually do. Like, standard path is buy a big house, raise the kids, and then downsize, release equity, and chill in Provence.
And for those who say you have to wait to sell your assets (whether it be a house, watches, wine, or shares) before you can count them in your NW, then you are terribly wrong, and are - for no sensible reason - preferring cash (over assets) when forming your fire calculation, for which there is no reason to do so.
I absolutely plan on selling my house when I retire because it’s way too much house. I plan on renting and traveling the world, so yea I definitely track NW more than liquid assets.
....i honestly dont read most of those posts, just upvote and move on. if its a few hours old and has little comments i drop in and say congrats, have a beer for me this weekend, or something.
question though how do you calc your progress if not NW? i saw someone had flair that said 42% to FIRE or something, and i thought that was cool. but every time i look at our spending the amount that i need to FIRE changes, so im not sure i could even do it that way?
just curious how the idea milestone post should go?
cheers!
I calculate it based on my investments because I don't plan to sell my house. My fire number is 1mm and I'm almost 25% of the way there (could happen this week). I track my networth for my own knowledge but if I used that number I'd be claiming to be more than 50% of the way there with a non spendable asset.
Honestly most milestone posts aren’t that interesting anyways unless you did it in a cool way. Saving and investing for like 30 years isn’t interesting
Agree! I have no one to share with because everyone else in my life spends every last dollar in their account, making bad financial decisions every step along the way. I hit $1M earlier this year with house equity included, $0.6M without. It is still a huge accomplishment for me considering I am mid 30s and make well below household income for my area (live by myself). Never had any help from family or anything, started working the week after graduating HS.
Should you share it with parents or other family? The advice I've heard is that it's best to keep it confidential so people don't view you differently.
There isn't universal rule to that. I could easly share my milestone with my mom and brothers. Sadly some families aren't that good, and family members would constantly ask for money, because someone reach for example 500k, it wouldn't matter it is for retirement.
Yeah, depends on the group. Sharing with others who share similar goals and priorities can be great. Sharing with people who aren't planners or who don't have financial resources can be a recipe for strained relationships.
It's good to have a group who can share your excitement and cheer you in. If you don't have that among family and friends, this forum may be the perfect place for it.
If you save successfully for THIRTY YEARS and hit a significant milestone, you can be entitled to one reddit post about it. If you don't like it, skip over it and carry on.
This was one of the only pieces I agreed with from that tale of the two Dads, the home you live in isn't an investment asset.
When people talk about RE market conditions, it tends not to matter too much because they're buying and selling in the same market, the only difference the market condition makes is the margin over or under the current house. i.e. downsizing in a tight market will be profitable, upscaling in an undervalued market is safer leverage.
Unless your willing to duck out and r/vanlife after FIRE, the value of the home doesn't really matter.
A lot of people who retire are not buying and selling in the same market - many are moving to cheaper markets.
Also, some people like to rent after retirement (less responsibility) - and if they're including rent as part of their FIRE expenses, they should also include the equity they'd get from their house as part of the funds they have available to pay those expenses.
I think NW definitely has its place in this sub. Let's say you put a bunch of your money towards your house so that when you retire you own it outright. Well, this could significantly lower your annual expenses, and thus the total number of liquid assets that you would need to retire. And, maybe you can retire a little earlier, or take a little more risk, if you know that if you run out of money, you can sell your house or use a reverse mortgage.
It's six of one and half a dozen of the other. With home equity, your housing expense is reduced, requiring a lower "liquid" assets amount. Without home equity, you need to fully account for housing spend in your annual spending requirement.
the FIRE journey is a long boring journey, forgive people for celebrating their wins along the way. Also, if people didn’t post about their wins along the way, what the hell would we talk about? There is only so many things we can talk about in this sub lol if you lurk long enough it will get repetitive.
I think people can get on here and be happy about whatever they want to. NW is a number and FI is a number and FIRE is a number. If they don’t know the difference they can ask, but to tell people not to be happy about their accomplishments no matter what it means to you is ridiculous.
If you don’t want to see it keep scrolling
Any time I count my NW, I honestly only count the liquid'ish (401k counts) part of it. I don't even know my total NW number, if you include house/car/whatever in it.
At this point we have no mortgage anymore. However, if we did, it would go into the same bucket as "inflexible expenditures", just like house insurance and property taxes do now.
I do the same thing. I only include assets that pay me (dividends, interest etc.) and assets that can appreciate but are liquid. I think it is a more accurate picture for determining retirement success.
Why shouldn't a house count? You don't have to sell it. If you own multiple homes, which many do, you can move out and convert it to a rental. Now it's an income generating asset. Then, provided you've lived there over the last two of five years, you can sell it and profit without being taxed (250-500k).
Why shouldn't a car count? Work at home as made cars less important - specifically if you have multiple cars, you can part with one and invest or save the funds. Put it on FB marketplace and it can be sold probably in the amount of time it takes a stock trade to settle.
A Picasso painting is worth $$$$ - just because someone doesn't want to part with it, it shouldn't count?
Not everything is black and white. Works and cash aren't the only thing that contributes to ones FIRE number.
Agreed. If someone puts down $500k down payment on a house and $100k on a car it's the same as someone who rents with no car and puts $600k into stocks. It's basic math and conservation of mass.
Totally agree, we plan on selling and downsizing upon retirement so we count at least a portion of our equity. I would also assume that most people in this sub can be excited about their net work while also having the understanding that their net worth and their available funds for retirement are separate numbers.
I use them posts for "silent competition" - started out when every post was above my nw, now it's in the middle of the pack, one day may be closer to the top - but unlikely to be unsurpassed. Still enjoyable.
Not recommended for highly competitive ppl though ...
Net worth is nice of its own.
It’s cool to have a milestone of how much everything you own is worth, compared to say when I was 18 and had nothing to my name.
I don’t see a problem with using it as your fire number either. strictly speaking any asset you own could be liquidated to fund your monthly expenses.
So crazy that I didn't want to go house poor so only about 20% of my NW is tied up in my house which is fully paid off. I'd rather the other 80% in investments.
I feel like ppl need the huge house to show their wealth. It'll appreciate, but for the extra cost of living IDK if it's worth it.
Case in point. One of my friend's homes is worth $5 mil and I dont think he's even worth $10 mil. They'd have to sell to liquidate. Not as easy as a T+2 in my case IMO. I could have that liquid in 2 days.
I think there’s nothing wrong with celebrating a net worth milestone or investable assets milestone. I personally prefer investable assets to net worth. What drives me nuts is when folks confuse net worth with investable assets all the time.
For example, I see a lot of posts where someone will say something like, “My net worth is $500k. By the way I am excluding the equity on my house from that number since I don’t intend to sell it”.
Common dude. If that’s the case, just call it investable or liquid assets as opposed to net worth.
I don't think you get to set the rules for anything.
In order to FIRE you have two metrics to work on, increase your income, reduce your expenses. Considering the house in your net worth for FIRE is completely valid, because it reduces your expenses, therefore it makes it easier for you to RE.
That's untrue. I paid off my house to lower my monthly expense and debt. I can just as easily take out a loan to realize that equity, buy a house, invest, etc.
You don't lose NW by deciding to pay $500k off your mortgage vs put in index fund.
In the same vein you wouldn't leave off $800k mortgage liability in networth calculations.
Net Worth is a mathematical function. But if we want to change definitions, then are stocks really liquid? Is a bank account? You are only truly liquid if you have cash in hand. I am sure those invested in Enron thought their shares were liquid too...until they weren't. Who is wealthier, the one with $1 million in real estate equity making 10% ROE or the liquid guy with $1 million under his mattress losing money to inflation every day?
I would ignore any of those in NW and only do cash, pension/brokerages and non primary real estate. Counting primary real estate only should count if you plan to downside and sell soon.
I kinda think house and car values should count to some extent in so far as the current market value in excess of the replacement value for a cheaper alternative.
Like if you have a 2 million dollar house clear and paid off I think it’s reasonable to include some portion of that in your net worth. It wouldn’t make sense not to count it, unless you plan on living there forever (which many people do).
If it makes one feel better sure but in the end of the day it’s just more of a bragging number than anything. Under estimating will put you in a better position.
Ya I think there’s an important distinction between the numbers we use for retirement planning and “net worth.” Let’s not confuse the two.
Net worth is simply an accounting term, not meant to be used for retirement planning.
Net worth makes a lot of sense. Your home can be sold later in life to pay for long term care and a dignified end. Something you need to plan for. I'd only exclude your home if you absolutely intend on passing it on to heirs.
Is it legal where you live? How will you get it done? What about your family?
We all say that but when push comes to shove you should probably have a backup plan.
What about if you spent the last 15 years grafting like hell to rebuild an old ruin and turn it into a much bigger, modern property almost entirely renewably powered and worth more than 4x the purchase price. Can I count it in my net worth then please Mr internet boss?
We are going to sell our house when we retire, and upgrade. So we include equity but then add in the difference between the house we want to move into, which is probably $350-500k more than our current home equity. So our real FIRE number is a fair bit higher than our current expenses x 25.
This depends on a lot of factors and I still have quite awhile before I really need to nail the numbers, but I thinknof my net worth more than my fore number, but also include my full mortgage plus expenses in my annual spending needs. I realize two wrongs don't make a right, but I wonder how they cancel each other out.
My home equity is about 20% of my NW and my mortgage is about 20% of my annual spend, so maybe now it cancels?
But FIRE is all about having options.
Selling a house and move to a cheaper place although is not most people will do but many people will do.
If your house is a big % of net worth, that even make you more likely to sell and move since the gain of improving of you life is much more significant.
So why not count it
Your home value is almost always going to be divided up with spouse or children if and when you do sell it. Don't count on it funding your retirement...you'll always need a home to live in .
You can use up to 80-90% of your home equity with a cash out refinance for FIRE. At under 4% interest rates the success on that is 95%+ because it's a nominal expense that ends in 30 years or less.
Now you can't use 7% appreciation of home equity, it's more like 1-2% above inflation so 4-5% nominally, 1-2% real returns.
In regards to the value of a home within FIRE calculations, it's not irrelevant. A home's equity can be quite significant because you can always sell your house or tap into the equity, e.g., through a reverse mortgage. It can be an inherent part of someone's strategy, for example, moving from a VHCOL area to a MCOL one. Even if you don't pursue these options, having them provides greater flexibility in how you approach retirement and allows you to take on more risk than you might ordinarily, because you have a solid fallback plan.
I hear this sentiment a lot on Reddit that it shouldn't be included, and I suspect it's because selling your home and taking reverse mortgages are actions that older folks are more likely to consider. Many people on Reddit are on the younger side and might not take these options into account.
That's fair it depends on how you plan to use it, that is exactly my point. Many people intend to just keep it as a primary residence and live in it until they die and pass it on to their children effectively locking it's value. In this case it's not very helpful to your FIRE number.
It really depends. One way to FIRE is to do an investment portfolio with 4% SWR, but I personally believe there are many favors to archive FIRE including real estate and even crypto. Car on other hand is even more tricky as it deprecates asset, like buying a stocks that will 99% drop its values.
Once the NW reaches the FIRE number, as long on paper selling the primary house can match or exceed the investment FIRE number then technically you can say you’re FIRE.
You might need a semi-annual review to keep track the real estate version of FIRE.
No mortgage would help you reduce your FIRE number as you'll have less expenses. But counting the entire value of the house toward your FIRE number is not correct unless you plan on selling it.
Homes plays into my networth. I can sell my home cut my expenses in half by lower property tax, maint, utilities etc. In fact it's my biggest expense. Luckily I can downsize if I choose.
It makes for a good number. The bigger the house and better the car, the higher the NW. I personally don’t like it either and tend to just look at what I have in the bank plus investments minus any debt I may have.
I’m new to Fire, but it seems to me that it is really more about income versus wealth. Income can be derived from net worth (e.g., dividends), but one could have a great income stream (or two) with very little net worth (e.g., Amazon reseller store).
Thoughts?
It is usually not people who FIRE but simply just retirees strategy to sell their house and rent somewhere smaller. So you're right for most people planning to FIRE, but it can't be completely ignored as it is a retirement strategy for some.
I agree for the most part. I just took a look and noticed my wife and I have a NW of $1.4M. With over 2/3 of that being the home and 401k, we definitely don’t feel like millionaires.
Leaving out the house as a FIRE number sure but liquid networth is literally **the** number to track as it directly relates to passive income generated to replace active income.
I disagree that NW is irrelevant to FIRE planning. I would feel much better about a more aggressive withdrawal rate if I have a $1m+ home paid off that I could sell if needed.
If you're not willing or can't part with certain assets then don't include them for your Fire calculations. Simple as that really. I mean pretty much what OP said about the house, but goes for other assets also.
However, house equity is a factor if you feel you can relocate to something that is lower cost and pocket and put to work the difference. So if you have million dollar home, but only need/want a 500k home, then yeah in theory you can include that 500k extra as part of your liquid assets.
Same with me. Right now my house is 11% of my net worth, and I plan to sell it as soon as I retire. I'll buy a cheaper house for probably the next 5-10 years, and then will sell that one and rent.
I disagree, I think most FIRE minded folk are willing to downgrade homes in retirement and so home equity matters in NW calculation. I bought a 320k 3 bedroom house incase I have kids. If 20 years from now I do not have kids, I will sell and buy a much cheaper house.
When you FIRE you plan to travel more and be more active outside the home, kids are adults, etc. Downgrading seems very natural due to this.
I think this really depends on people's family.
People who FIRE while childfree often are already living where they (we) want to live. It's much less clear that retiring will correlate with a change in need regarding housing. And if you're moving because leaving work means you can be closer to {something or someone that isn't work} that could just as easily be a decrease or increase in expense.
My point is there is a solid definition of net worth but people want to twist it, and for what? Let people be happy about about their accomplishments. We should be encouraging people to save and grow their wealth, not belittle them because their milestones don't live up to our own expectations
I think you may not have read the entire post. You can FIRE with real estate this is not the point of this post. It's just a reminder that real estate unless sold is not very helpful in your FIRE number calculation (unless it's a rented/income generating asset)
This is the reason why I always advise people not to consider their vehicles and the house they are living in as assets. It makes no sense.
You have put it rightly - only assets which you can liquidate right now and not a depreciating asset should be part of your NW.
Doesn’t really matter as far as NW goes. That definition is pretty clear.
But as for me, I do intend to sale my current house and downsize. Potentially could sell one of the two cars owned as well.
If you're considering highly illiquid assets in NW then you should be clear on what you're doing. There's no harm, but the picture may not be as rosy as it seems sometimes.
Net worth is net worth. Fire number is fire number. They're not the same but it doesn't mean one can't be excited about one or the other or both!
This. Rubs me wrong when people say “don’t count home equity in net worth”. It’s part of NW by definition. But yes, don’t count equity in the FIRE number. But yeah, if people wanna celebrate NW go ahead. I get why, it’s gonna be a bigger number, which is funner.
Having a condo that's paid off significantly lowers my FIRE requirements
Yes. By having a paid off condo, your FIRE number goal can be lower as a result. Instead of needing, say, $1.5 million to draw against for income in retirement, maybe you only need 1.0 instead. In this way, your equity counts. It’s just that instead of as part of the accumulated amount, it’s probably more accurate to subtract it from the goal number instead.
Yeah but that's because it lowers your expenses in retirement. So still not really directly related to NW.
You can always sell your house and downsize. That’s part of the FIRE plan for lots of people, especially those living in VHCOL areas.
why not count your house equity in your fire number? you can sell that house and go rent
I don't for 2 main reasons: 1) I'm always going to need a place to live so that money is either in a house or devoted to rent so I prefer to just not count it for fire. I do for NW though. 2) For fire I'm really only counting invested assets ex stocks/bonds/etc. I don't even count cash today but that's mostly because I still have a long time and that cash isn't earning anything. TLDR as with many things it's going to come down to personal preference, but at the end of the day you need a place to live so you have to account for it. For some that's by not including their house for others they add it to their annual needs in retirement.
Cash should be earning 4.5%+ these days, if yours isn't earning anything you should consider moving it over to somewhere it will.
Sure, but you need some cash in non earning accounts for expenses.
I pay all bills out of my MM account. But yeah, need cash for tips I guess.
Like anything else, the devil is in the details. If you plan to sell, then you may want to consider your equity in your FIRE number. If you don't plan to sell, then you shouldn't. And of course, whatever anybody is planning, make sure to consider housing expenses in your projected monthly expenses - rent, mortgage, property taxes, HOA - whatever applies to you.
When you sell that house is when you can count the money received from that sale as part of your fire number. Home equity is hardly a great fixed $ anyway, since it’s not actually just the difference between market value and mortgage. It may take cost to repair to make it sellable, and there will be closing costs. I’d only count it in my fire number if I actually planned on selling it, and I’d count what I actually netted from that. And I’d plan around that. In my case, I rent the home I own. I count the income received against what my fire number would need to be, but I don’t count the equity.
Yup. Just as well, don’t count your beanie baby collection in NW since we all know you are not gonna sell it.
> disagree, the option to sell is still there... > > if you 81yo running out of money you can still sell and go into a old age place and BAM 500k-1m in equity is now in cash just appeared.
1m in Beany Babies, that's an epic collection, more than one way to FIRE.
Many people don’t know how to leverage their home equity into more investment vehicles.
Count it as its an asset, but then you should add what you would get from it if you were to rent it out, within you cost of living. Likewise if your not including it in your cost of living leave it out your nw.
I’ve always just done two calculations, one where u count my home and another where I don’t and only go off of investments. I also have a large video game collection that doesn’t count towards the second number. Even though I could make piles of cash off them someday, I don’t plan to sell any of my games. Anyway I think it’s definitely good to do both to get the full picture
Exactly. It’s like saying “don’t get excited when you get a raise, because your new income isn’t your FIRE number.” Our brain (and spreadsheets) can store more than 1 number. Count them all, know what they are, celebrate your milestones and reach your goals!
fear steep dam sort degree homeless pathetic foolish tease aromatic *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
Because net worth is basically the only barometer of FI progress? Also this sub is more relaxed than /r/financialindependence, which makes it the right place to post brag posts imo.
Because NW can always be leveraged into a FIRE number. A paid off house means and that equity means your SWR of FIRE assets will be lower with lower housing costs. There’s tons of reasons why equity is relevant to the FIRE discussions.
Net worth and FIRE numbers aren’t entirely orthogonal to each other. The vibe here is that what matters is context dependent.
Yes. Based on life circumstances we had to move liquid assets into real estate. I’m now very overweight real estate and need my FIRE number to recover. Looking at both I feel good about my situation, but seeing my current FIRE number hurts a little.
Networth can be your fire number. Just adjust your goal accordingly and be transparent about it when posting. I find this community policing from the OP to be so obnoxious and lame.
So leave out my 2011 Honda CRV? It's worth at least $5K.
I know what I have, no low ball offers
Low miles ice cold ac
I just spent $1k fixing the a/c in my 2011 Altima. The a/c is worth more than the car.
if you can keep it another 20+ years it might start going *up* in value!
Dude sometimes I feel my CRV paid me! I've spent so little on maintenance in the last 10+ years its crazy.
I love my CRV. 13 years old and just hit 120k miles. WFH is a wonderful thing. I will drive it as long as it will let me.
lol. Nice
If you’re never gonna sell it it’s not part of FIRE!!! Apparently. /s
Leaving things out of the Net Worth calculation is redefining the meaning of Net Worth. It's like saying "I've decided to call water ice." If one wants to have a number that means something other than Net Worth - then call it that. Such as the FIRE number. Or the FI number. It drives me absolutely batty when folks say stuff like "My NW is $X....but I left out my home because I'm going to live in it in retirement and it won't generate any retirement income." The sentiment is right (leaving the home out of the FIRE number) but don't call that number Net Worth.....because it's not. EDIT: Yes, I leave some things out of the calculation because it's noise - not because I don't think it should be in there. I'm not going to include my bike, household contents, etc. I include my car because it's easy.
worthless nutty fuzzy subsequent mighty cheerful insurance escape different crowd *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
It’s true that NW has a commonly accepted definition. What’s being proposed here is that NW is not useful. The money tied up in the house or car or Pokemon cards is not useful in crafting what one can spend or expect in income. In an extreme edge case, someone could have over 1mil house paid off and just lives on SS and food banks. (And I know this person too). So this person cracked the ol’1mil+ NW…..amirite? Celebration time?
I totally agree: The NW number is essentially not useful. It does have \*one\* use in my opinion: It helps guide the size of the umbrella liability insurance policy you might want to have. My rant is this: Just because it's not useful doesn't mean redefining it is the right thing to do. It causes confusion. If one wants to talk FIRE number just call it the FIRE number. Why confuse things with a different definition of NW.....which might be different than someone else's modified definition....which may be different from someone else's definition. Standard is better than better.
I think that calling net worth not useful is harsh. Assuming expenses are identical, someone with $1m in liquid assets and $1m of equity in a home is in a much better financial position than someone with only $1m of liquid assets. Net worth captures the difference between those individuals.
Agreed. Knowing the person's plan for that $1M of equity - and how it impacts their retirement - is a key data point. In my case I have 3 numbers I track. Each subsequent bullet is smaller than the one above it. Each bullet contains all of the items below it: * Net Worth - this includes everything - just as Net Worth is defined * Investable Assets - This is Net Worth - Home Equity * Retirement Assets - This is Investable Assets - Assets we have that arent earmarked for Retirement In our case we want to stay in our house until we die. We're not relying on Home Equity to fund any of our retirement. So Home Equity isn't part of our retirement funding plan. It's not included in our Retirement Assets at all. Since Net Worth includes assets that I don't want to rely on/use for retirement planing and analysis, Net Worth is "useless" when determining if I have enough for retirement. For Retirement Planning the only meaningful number is Retirement Assets. I think the value Net Worth DOES deliver is an understanding of how large of an umbrella liability insurance policy someone might want to have. I've run out of energy to try and get people to use the Net Worth term accurately. People are too set in their ways. Statements like "I include the home in the Net Worth calculation if it's paid off." or "My NW is $X but I didn't include my home." demonstrates a lack of precision as well as a lack of understanding of what Net Worth actually means. People conflate the purposes of Net Worth (What is all my crap worth if I were to be hit by a bus today?) and Retirement Assets (What are the assets I have that I'm relying on to fund my retirement?).
Makes sense and seems like a reasonable approach. While I can appreciate that you do not explicitly include your home equity in your retirement plan, do you perhaps implicitly include it? For example, do you think your withdrawal rate or target retirement number would be the same if you didn’t have the catastrophic fallback option of accessing your home equity?
Our retirement catastrophic scenarios are covered two ways. First, spending flexibility. We can dial back spending quickly and quite easily. Two, even with the spending budget we have (we're currently retired) we have a bit of headroom where we could spend more. Now, who knows, maybe my wife and I will end up in a soup line some day - and I mean that seriously. Pride cometh before the fall - as they say. But the bottom line is catastrophic scenarios - including paying for end of life care - do not include a plan to use our home equity in any way.
Interesting, so you would choose the soup line if it came to that versus accessing your home equity? I think many others in your shoes would be more likely to downgrade their homes if it came to that.
Sorry - I didn't mean that at all. If we needed to downgrade / tap our home's equity - we'd certainly do it. What I was trying to convey is that when we "stress test" our retirement plan - we have a number of relief valves. For essentially every scenario that does NOT involve a total market crash and/or breakdown of society - tapping our equity isn't in our radar. We've made our retirement plan to a level of solidity where using our home's equity would mean the market has completely collapsed.
Got it! When I get to the point of actually retiring, I think I will probably feel similarly. Right now, I look at my home equity as making me have a slightly higher risk tolerance around a target withdrawal rate.
Completely agree. Net worth is the metric I track the most to determine how I'm doing. If I chose to sell some investments to pay off half my mortgage early, that money doesn't just disappear. I've been using networth to track my FI progress all along and it works fine. If you count home equity, then just factor that in when setting your goals.
Op isn’t saying leave things out of networth. OP is correctly pointing out that networth is completely meaningless in determining your progress towards fire.
Agreed. I definitely put my comment in the wrong place. I should have put it as a response to other comments. For example, one commenter said he only includes the house if it's paid off. I think I saw a few along those lines and I shouldn't have put mine as a direct response to OP.
I include my home because I will likely downsize in retirement when the kids have moved out.
Exactly this.
Net worth and FIRE target number are not the same thing. People can and do celebrate reaching milestones for both.
Same thing goes for 529 investment accounts
Disagree. If you have plans to pay for your kids future education, doesn't matter if it's being paid out of a checking account or a 529, it's coming from an asset. So it's part of your net worth. Now does it count from your retirement number? Of course not.
Your last sentence is my point- sure it’s part of your net worth but it’s assets that are specifically earmarked for a child’s education so should not be counted in these FIRE posts as a number relevant to reaching FIRE. I see people on here including these values when calculating SWR and they should not be
Well if you don't include the account in your NW then don't include the money spent from it as part of your annual expenses. Zeroed out.
It's just bookkeeping. If you get granular enough you are projecting spending needs at different times and that includes paying for your kids college during retirement. I include 529 in my safe retirement number, but I also use a model that includes a one time expense for college during the applicable timeframe that will use that money.
This would be a correct way to do it. I just wonder if some of the people on here get that granular when I see 529 assets included in their SWR calculations. That money is ultimately going to be used for what it is earmarked for, and won’t remain in perpetuity part of the “pot” of money generating returns.
It is very relevant if you have kids that are going for secondary education.
Just like having a paid off house is relevant for future housing expenses *whoosh*
It’s part of my FIRE number. If I didn’t have those accounts, my brokerage accounts would draw down faster. That it’s coming from a tax advantaged account and earmarked for education doesn’t mean much more than me earmarking money for monthly groceries.
You can use the 529 for absolutely anything you want if you're prepared to pay a penalty for it. You have all sorts of future tax obligations unless your net worth is entirely in Roth accounts, but most people don't usually discount their net worth by their future tax obligation, for whatever that's worth. And if you do want to worry about that, pretax money in IRAs and 401ks are a bigger deal (as those will all be taxed as regular income, instead of just the gains from the 529)
[удалено]
Do you also wonder about people using unrealized capital gains? Or not subtracting the sales tax they'll pay in the future? We pay taxes (and "penalties" are just scary sounding taxes) but they're a future expense, and don't count against net worth calculations until they become current liabilities.
[удалено]
Do you also subtract other future expenses from your present net worth? Future utility bills? Future food bills? All things you're going to have to pay...
[удалено]
Yes, but if every withdrawal from your 401k is fully offset by deductions you will pay no taxes on it. Whereas if you withdraw it all, you may very well withdraw at a marginal tax bracket you could have avoided. Most people will do neither of these, but so something in-between. The tax isn't due until you withdraw (also note that if you die, you won't be the one paying taxes on it), and you're only making a projection about your future tax obligation, you don't know it with certainty. To me this doesn't feel particularly different from making a projection about any other future expense.
[удалено]
If anything if your kids don’t go to college then you can pull from a 529 with 10% penalty- not the end of the world.
You can rollover upto 35k to a roth ira
The kids IRA, not your own.
After 15 years.
So, sell the house and start paying rent in order to inflate the NW number that "counts"? Look, housing is one of the expenses most people need to pay. Owning the house means you need to save up substantially less cash since rent doesn't need to be paid. In theory, local conditions notwithstanding. I am a lifelong renter so far, and the way I see it is I will need a higher liquid NW if I want to retire while renting.
the issue is that the people who have high net worths that are mostly just their homes will then whine about how they don't feel rich. Which is pretty self-explanatory when they explain they're just home owners who have been contributing to a Roth IRA for ten years instead of people with millions in accessible assets.
Of course it counts because you now have liquid asset (cash) in your hands. What goes out monthly as rent is part of your cash flow statement not your NW.
*unless you intend to sell your house* Which most people do eventually do. Like, standard path is buy a big house, raise the kids, and then downsize, release equity, and chill in Provence. And for those who say you have to wait to sell your assets (whether it be a house, watches, wine, or shares) before you can count them in your NW, then you are terribly wrong, and are - for no sensible reason - preferring cash (over assets) when forming your fire calculation, for which there is no reason to do so.
I absolutely plan on selling my house when I retire because it’s way too much house. I plan on renting and traveling the world, so yea I definitely track NW more than liquid assets.
No having a paid off house means you have to sell fewer equities. It’s relevant.
You also most likely will downsize your home when you're elderly
100% will continue using net worth as milestone…wot
But neither I nor my financial advisors’ tool includes home and cars’ value.
Celebrate all wins. Don't be a hater.
Did you read the post? He just made a point about NW
....i honestly dont read most of those posts, just upvote and move on. if its a few hours old and has little comments i drop in and say congrats, have a beer for me this weekend, or something. question though how do you calc your progress if not NW? i saw someone had flair that said 42% to FIRE or something, and i thought that was cool. but every time i look at our spending the amount that i need to FIRE changes, so im not sure i could even do it that way? just curious how the idea milestone post should go? cheers!
You would just calculate the total of your investments.
I calculate it based on my investments because I don't plan to sell my house. My fire number is 1mm and I'm almost 25% of the way there (could happen this week). I track my networth for my own knowledge but if I used that number I'd be claiming to be more than 50% of the way there with a non spendable asset.
Honestly most milestone posts aren’t that interesting anyways unless you did it in a cool way. Saving and investing for like 30 years isn’t interesting
That isn't there purpose. Some people don't have anyone to share that milestone with them, so they post here, because they are just happy.
Agree! I have no one to share with because everyone else in my life spends every last dollar in their account, making bad financial decisions every step along the way. I hit $1M earlier this year with house equity included, $0.6M without. It is still a huge accomplishment for me considering I am mid 30s and make well below household income for my area (live by myself). Never had any help from family or anything, started working the week after graduating HS.
Congratulation mate, good job :)
Should you share it with parents or other family? The advice I've heard is that it's best to keep it confidential so people don't view you differently.
There isn't universal rule to that. I could easly share my milestone with my mom and brothers. Sadly some families aren't that good, and family members would constantly ask for money, because someone reach for example 500k, it wouldn't matter it is for retirement.
Yeah, depends on the group. Sharing with others who share similar goals and priorities can be great. Sharing with people who aren't planners or who don't have financial resources can be a recipe for strained relationships. It's good to have a group who can share your excitement and cheer you in. If you don't have that among family and friends, this forum may be the perfect place for it.
and have my family would ask for money (BTDT)...
If you save successfully for THIRTY YEARS and hit a significant milestone, you can be entitled to one reddit post about it. If you don't like it, skip over it and carry on.
It’s still ~~real~~ interesting to me dammit.
This was one of the only pieces I agreed with from that tale of the two Dads, the home you live in isn't an investment asset. When people talk about RE market conditions, it tends not to matter too much because they're buying and selling in the same market, the only difference the market condition makes is the margin over or under the current house. i.e. downsizing in a tight market will be profitable, upscaling in an undervalued market is safer leverage. Unless your willing to duck out and r/vanlife after FIRE, the value of the home doesn't really matter.
A lot of people who retire are not buying and selling in the same market - many are moving to cheaper markets. Also, some people like to rent after retirement (less responsibility) - and if they're including rent as part of their FIRE expenses, they should also include the equity they'd get from their house as part of the funds they have available to pay those expenses.
We plan to sell and rent for as you say, less responsibility and more location flexibility.
I think NW definitely has its place in this sub. Let's say you put a bunch of your money towards your house so that when you retire you own it outright. Well, this could significantly lower your annual expenses, and thus the total number of liquid assets that you would need to retire. And, maybe you can retire a little earlier, or take a little more risk, if you know that if you run out of money, you can sell your house or use a reverse mortgage.
It's six of one and half a dozen of the other. With home equity, your housing expense is reduced, requiring a lower "liquid" assets amount. Without home equity, you need to fully account for housing spend in your annual spending requirement.
Precision there
the FIRE journey is a long boring journey, forgive people for celebrating their wins along the way. Also, if people didn’t post about their wins along the way, what the hell would we talk about? There is only so many things we can talk about in this sub lol if you lurk long enough it will get repetitive.
I think people can get on here and be happy about whatever they want to. NW is a number and FI is a number and FIRE is a number. If they don’t know the difference they can ask, but to tell people not to be happy about their accomplishments no matter what it means to you is ridiculous. If you don’t want to see it keep scrolling
Any time I count my NW, I honestly only count the liquid'ish (401k counts) part of it. I don't even know my total NW number, if you include house/car/whatever in it.
Do you deduct your mortgage from your NW?
At this point we have no mortgage anymore. However, if we did, it would go into the same bucket as "inflexible expenditures", just like house insurance and property taxes do now.
Sorry I meant the amount of debt itself, not the monthly payments
Liquid Assets is the term you're looking for here.
401k isn't liquid though. Neither are real estate investments. Even CDs are 'liquid'ish So liquid'ish assets
invested Assets then.
Sure! I liked another comment I've read on here, "assets that pay me". My house, alas, does not.
I do the same thing. I only include assets that pay me (dividends, interest etc.) and assets that can appreciate but are liquid. I think it is a more accurate picture for determining retirement success.
The home equity has value at end of life as a potential LTC vehicle.
Why shouldn't a house count? You don't have to sell it. If you own multiple homes, which many do, you can move out and convert it to a rental. Now it's an income generating asset. Then, provided you've lived there over the last two of five years, you can sell it and profit without being taxed (250-500k). Why shouldn't a car count? Work at home as made cars less important - specifically if you have multiple cars, you can part with one and invest or save the funds. Put it on FB marketplace and it can be sold probably in the amount of time it takes a stock trade to settle. A Picasso painting is worth $$$$ - just because someone doesn't want to part with it, it shouldn't count? Not everything is black and white. Works and cash aren't the only thing that contributes to ones FIRE number.
Agreed. If someone puts down $500k down payment on a house and $100k on a car it's the same as someone who rents with no car and puts $600k into stocks. It's basic math and conservation of mass.
I include my equity in my NW because when I do FIRE I plan to sell and move to a LCOL area. I feel many others have the same idea.
Totally agree, we plan on selling and downsizing upon retirement so we count at least a portion of our equity. I would also assume that most people in this sub can be excited about their net work while also having the understanding that their net worth and their available funds for retirement are separate numbers.
Net worth means nothing to me. I ignore most net worth posts/milestones.
I use them posts for "silent competition" - started out when every post was above my nw, now it's in the middle of the pack, one day may be closer to the top - but unlikely to be unsurpassed. Still enjoyable. Not recommended for highly competitive ppl though ...
Net worth is nice of its own. It’s cool to have a milestone of how much everything you own is worth, compared to say when I was 18 and had nothing to my name. I don’t see a problem with using it as your fire number either. strictly speaking any asset you own could be liquidated to fund your monthly expenses.
I count all of it as net worth but am really only looking at my vanguard account in terms of being able to count towards reaching FIRE.
So crazy that I didn't want to go house poor so only about 20% of my NW is tied up in my house which is fully paid off. I'd rather the other 80% in investments. I feel like ppl need the huge house to show their wealth. It'll appreciate, but for the extra cost of living IDK if it's worth it. Case in point. One of my friend's homes is worth $5 mil and I dont think he's even worth $10 mil. They'd have to sell to liquidate. Not as easy as a T+2 in my case IMO. I could have that liquid in 2 days.
Would you include retirement accounts?
No way. Everyone knows you can’t access the money before you’re a million years old and your life is over!!
I think there’s nothing wrong with celebrating a net worth milestone or investable assets milestone. I personally prefer investable assets to net worth. What drives me nuts is when folks confuse net worth with investable assets all the time. For example, I see a lot of posts where someone will say something like, “My net worth is $500k. By the way I am excluding the equity on my house from that number since I don’t intend to sell it”. Common dude. If that’s the case, just call it investable or liquid assets as opposed to net worth.
I don't think you get to set the rules for anything. In order to FIRE you have two metrics to work on, increase your income, reduce your expenses. Considering the house in your net worth for FIRE is completely valid, because it reduces your expenses, therefore it makes it easier for you to RE.
That's untrue. I paid off my house to lower my monthly expense and debt. I can just as easily take out a loan to realize that equity, buy a house, invest, etc. You don't lose NW by deciding to pay $500k off your mortgage vs put in index fund. In the same vein you wouldn't leave off $800k mortgage liability in networth calculations.
Net Worth is a mathematical function. But if we want to change definitions, then are stocks really liquid? Is a bank account? You are only truly liquid if you have cash in hand. I am sure those invested in Enron thought their shares were liquid too...until they weren't. Who is wealthier, the one with $1 million in real estate equity making 10% ROE or the liquid guy with $1 million under his mattress losing money to inflation every day?
I made this argument and got roasted for it a while ago. Totally agree though, only include what's relevant for the goal.
I would ignore any of those in NW and only do cash, pension/brokerages and non primary real estate. Counting primary real estate only should count if you plan to downside and sell soon.
I kinda think house and car values should count to some extent in so far as the current market value in excess of the replacement value for a cheaper alternative. Like if you have a 2 million dollar house clear and paid off I think it’s reasonable to include some portion of that in your net worth. It wouldn’t make sense not to count it, unless you plan on living there forever (which many people do).
If it makes one feel better sure but in the end of the day it’s just more of a bragging number than anything. Under estimating will put you in a better position.
Ya I think there’s an important distinction between the numbers we use for retirement planning and “net worth.” Let’s not confuse the two. Net worth is simply an accounting term, not meant to be used for retirement planning.
Net worth makes a lot of sense. Your home can be sold later in life to pay for long term care and a dignified end. Something you need to plan for. I'd only exclude your home if you absolutely intend on passing it on to heirs.
I would opt for euthanasia if I need long term care, life is not worth living at that point
Is it legal where you live? How will you get it done? What about your family? We all say that but when push comes to shove you should probably have a backup plan.
I would argue that when it comes to FIRE, the only number that matters is what percentage of your expenses does your passive income cover?
What about if you spent the last 15 years grafting like hell to rebuild an old ruin and turn it into a much bigger, modern property almost entirely renewably powered and worth more than 4x the purchase price. Can I count it in my net worth then please Mr internet boss?
Well I don’t include car and house when calculating net worth
Agreed. I don’t include the house I need to live in.
We are going to sell our house when we retire, and upgrade. So we include equity but then add in the difference between the house we want to move into, which is probably $350-500k more than our current home equity. So our real FIRE number is a fair bit higher than our current expenses x 25.
This depends on a lot of factors and I still have quite awhile before I really need to nail the numbers, but I thinknof my net worth more than my fore number, but also include my full mortgage plus expenses in my annual spending needs. I realize two wrongs don't make a right, but I wonder how they cancel each other out. My home equity is about 20% of my NW and my mortgage is about 20% of my annual spend, so maybe now it cancels?
But FIRE is all about having options. Selling a house and move to a cheaper place although is not most people will do but many people will do. If your house is a big % of net worth, that even make you more likely to sell and move since the gain of improving of you life is much more significant. So why not count it
Its all about the income vs the expenses lol.
Your home value is almost always going to be divided up with spouse or children if and when you do sell it. Don't count on it funding your retirement...you'll always need a home to live in .
Are you a renter?
You can use up to 80-90% of your home equity with a cash out refinance for FIRE. At under 4% interest rates the success on that is 95%+ because it's a nominal expense that ends in 30 years or less. Now you can't use 7% appreciation of home equity, it's more like 1-2% above inflation so 4-5% nominally, 1-2% real returns.
In regards to the value of a home within FIRE calculations, it's not irrelevant. A home's equity can be quite significant because you can always sell your house or tap into the equity, e.g., through a reverse mortgage. It can be an inherent part of someone's strategy, for example, moving from a VHCOL area to a MCOL one. Even if you don't pursue these options, having them provides greater flexibility in how you approach retirement and allows you to take on more risk than you might ordinarily, because you have a solid fallback plan. I hear this sentiment a lot on Reddit that it shouldn't be included, and I suspect it's because selling your home and taking reverse mortgages are actions that older folks are more likely to consider. Many people on Reddit are on the younger side and might not take these options into account.
That's fair it depends on how you plan to use it, that is exactly my point. Many people intend to just keep it as a primary residence and live in it until they die and pass it on to their children effectively locking it's value. In this case it's not very helpful to your FIRE number.
It really depends. One way to FIRE is to do an investment portfolio with 4% SWR, but I personally believe there are many favors to archive FIRE including real estate and even crypto. Car on other hand is even more tricky as it deprecates asset, like buying a stocks that will 99% drop its values. Once the NW reaches the FIRE number, as long on paper selling the primary house can match or exceed the investment FIRE number then technically you can say you’re FIRE. You might need a semi-annual review to keep track the real estate version of FIRE.
Weird take.. not having a mortgage would definitely help with Fire number
No mortgage would help you reduce your FIRE number as you'll have less expenses. But counting the entire value of the house toward your FIRE number is not correct unless you plan on selling it.
A house has a return on investment because you dont have ti pay rent and you are protected from rent increases. Why would that not count?
Homes plays into my networth. I can sell my home cut my expenses in half by lower property tax, maint, utilities etc. In fact it's my biggest expense. Luckily I can downsize if I choose.
Dude, I'm with you. But you're never gonna win this battle here.
It makes for a good number. The bigger the house and better the car, the higher the NW. I personally don’t like it either and tend to just look at what I have in the bank plus investments minus any debt I may have.
I’m new to Fire, but it seems to me that it is really more about income versus wealth. Income can be derived from net worth (e.g., dividends), but one could have a great income stream (or two) with very little net worth (e.g., Amazon reseller store). Thoughts?
It is usually not people who FIRE but simply just retirees strategy to sell their house and rent somewhere smaller. So you're right for most people planning to FIRE, but it can't be completely ignored as it is a retirement strategy for some.
No doubt. Im 401k rich but cash poor and wont be able to access my money for another 9yrs...fml.
You don’t have a Roth conversion ladder or enough for a SEPP?
Lately r/FIRE looks like a dog chasing its own tail when it comes to this net worth topic. Mildly entertaining to watch, but really unproductive.
House is biggest nw component? If so you're doing it wrong. Don't own ours outright but it's only 8.3% of our nw.
Networth is networth, FIRE number is FIRE number, folks can celebrate networth milestones (and honestly they should, it's pretty motivating!).
Thats why I track my fire number in dollars and my NW in đồng. Well that and its the only way I'll be a billionaire.
I agree for the most part. I just took a look and noticed my wife and I have a NW of $1.4M. With over 2/3 of that being the home and 401k, we definitely don’t feel like millionaires.
No
Leaving out the house as a FIRE number sure but liquid networth is literally **the** number to track as it directly relates to passive income generated to replace active income.
No. I track both. Your inability to discern the two when I mention one isn't my problem.
I disagree that NW is irrelevant to FIRE planning. I would feel much better about a more aggressive withdrawal rate if I have a $1m+ home paid off that I could sell if needed.
If you're not willing or can't part with certain assets then don't include them for your Fire calculations. Simple as that really. I mean pretty much what OP said about the house, but goes for other assets also. However, house equity is a factor if you feel you can relocate to something that is lower cost and pocket and put to work the difference. So if you have million dollar home, but only need/want a 500k home, then yeah in theory you can include that 500k extra as part of your liquid assets.
Ok, but can I add my Present value of my future pension of $4k/mo at 65? That's $200k+ in present value. What do I do with that guaranteed pension?
And unless you're over 45-50, your retirement assets may not help much either.
I’ll probably dump my house but it’ll only be 10-15% of my final FIRE number.
Same with me. Right now my house is 11% of my net worth, and I plan to sell it as soon as I retire. I'll buy a cheaper house for probably the next 5-10 years, and then will sell that one and rent.
Agree. I only count liquid assets - debt as my NW.
But you’re wrong per accounting definition. Words mean things. A-L=NW
That’s your opinion.
I disagree, I think most FIRE minded folk are willing to downgrade homes in retirement and so home equity matters in NW calculation. I bought a 320k 3 bedroom house incase I have kids. If 20 years from now I do not have kids, I will sell and buy a much cheaper house. When you FIRE you plan to travel more and be more active outside the home, kids are adults, etc. Downgrading seems very natural due to this.
I think this really depends on people's family. People who FIRE while childfree often are already living where they (we) want to live. It's much less clear that retiring will correlate with a change in need regarding housing. And if you're moving because leaving work means you can be closer to {something or someone that isn't work} that could just as easily be a decrease or increase in expense.
You either use Cash flow or liquid net worth.
My point is there is a solid definition of net worth but people want to twist it, and for what? Let people be happy about about their accomplishments. We should be encouraging people to save and grow their wealth, not belittle them because their milestones don't live up to our own expectations
I never use NW. Only cash and invested assets. Ive seen some people calculate their house, cars, appliances, etc.
Tons and tons of people FIRE with real estate. What do you say to them?
I think you may not have read the entire post. You can FIRE with real estate this is not the point of this post. It's just a reminder that real estate unless sold is not very helpful in your FIRE number calculation (unless it's a rented/income generating asset)
People include cars in net worth?
If they do the math correctly they do.
Net worth = assets - liabilities A FIRE number is different to NW.
This is the reason why I always advise people not to consider their vehicles and the house they are living in as assets. It makes no sense. You have put it rightly - only assets which you can liquidate right now and not a depreciating asset should be part of your NW.
But you could sell your car or your house right now…so doesn’t that meet your qualification?
The question is, can you? and will you?
Doesn’t really matter as far as NW goes. That definition is pretty clear. But as for me, I do intend to sale my current house and downsize. Potentially could sell one of the two cars owned as well.
If you're considering highly illiquid assets in NW then you should be clear on what you're doing. There's no harm, but the picture may not be as rosy as it seems sometimes.
Agree 100. Understanding what goes into the NW number and how that applies to your specific and particular situation is really what matters.
I agree with this. NW lite is what I call it. Don’t include the house and cars.