Flexo over at Consumerism Commentary, ( one of my favorite personal finance blogs ) asked what sounds to be a silly question – Should you include your clothes when determining your net worth? While it sounds goofy, what is net worth really? The value of all your assets, minus the amount of all your liabilities. That’s a pretty broad explanation when you think about it. What qualifies as an asset – your house, your clothes, your television set? How about liabilities – is your child a liability?
I take a bit simpler approach to calculating net worth. When listing my assets, I consider things like my car, cash in the bank ( or under the mattress if you’re old school ), retirement accounts, and a house. Liabilities would include any credit card debt, car loan, mortgage, or debts of any kind.
When calculating my net worth, I also put my retirement accounts into a different section. Yes, they are part of my net worth, but they are not “liquid” technically, and can only be accessed when I’m much older, or in case of an extreme emergency. Within the next few weeks I’ll be releasing an Excel spreadsheet that will help you calculate your net worth a little bit easier.
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I leave things like clothes, DVDs, and Books out mostly because even though they might have some value the amount of money you could possibly get is such a small fraction of their perceived value that its not worth it.
I even leave my coin collection and small electronics off the list for the same reason even though some of the items are ‘worth’ hundreds or even thousands of dollars.
Yup – it’s safe to say that coins and electronics also don’t belong in a net worth calculation. Heck, if you added up all the TV’s, DVD players, and whatnot in your house, it could be significant on paper.
But in reality, the value you’d get for them is far from their paper value, and they’re not easily liquidated.