# What is percentage of net worth?

Let's say you have the following balance sheet:

``````\$350,000 - home value
\$200,000 - retirement
\$15,000 - savings
(assets = \$565,000)

\$250,000 - mortgage
\$10,000 - car loan
\$40,000 - student loans
\$15,000 - credit cards
(liabilities = \$315,000)
``````

Net worth = \$250,000

If you then buy a car for \$45,000, is that considered 21% (45/250) of your net worth or 8% (45/565)?

What percentage would the mortgage be considered as?

You properly calculated net worth of \$250k, the percentage of net worth for a given asset would then be based on how much of that \$250k it contributes. For example the house is worth \$350k but has a \$250k mortgage, so it contributes 100k of the 250k net worth, or 40% of net worth. That's all well and good when the liabilities each tie to a specific asset, but you've got liabilities that don't logically offset a specific asset. I've only ever considered net worth as a whole, so I'm not sure of a use-case for this calculation, but I would probably apply the other liabilities equally after taking off the ones tied to specific assets.

So here I've used the mortgage to offset the home value, then aggregated remaining liabilities and calculated the percentage to offset all assets by: Regarding the car purchase, if you buy a \$45k car, you are either shifting assets around or incurring new debt, neither of which alters your current net worth (ignoring immediate depreciation on the car which reduces net worth). So that means the percentage of your net worth that it contributes will depend on how it is purchased, if fully financed with no money down it would represent 0% of your net-worth because it is offset by the attached debt, if you bought it outright using other assets then it would represent ~14% of your net worth using the approach above and assuming the existing \$10k car loan was unrelated to this new car purchase.

Some people suggest you should spend less than x% of net worth on a vehicle as a rule, so if you have \$250k net worth that would be the denominator in any such calculations. This isn't a rule I'd heard of before today, but saw it and thought it might be part of why you were asking. It's not a rule I have ever thought about or followed.

• Trying to understand the implication here. If I buy a \$10K car with a \$10K loan, are you suggesting the car is not an asset? How does this change if the \$10K came from a HELOC? – JTP - Apologise to Monica Nov 18 '18 at 16:59
• @Joe, in that case, the car is an asset, but since there is a matching debt, net worth doesn’t change. – prl Nov 18 '18 at 17:18
• @JoeTaxpayer: In real life, it's a net debit. You buy a car for \$10K, borrowing the money. You owe \$10K, but realistically can only sell the car for \$8K or less. – jamesqf Nov 18 '18 at 18:28
• So if you just got out of college with a negative net worth due to student loans, you shouldn't buy any car at all? – The Photon Nov 18 '18 at 18:31
• This is my concern. Say I have a \$400K house. Whether I owe \$40K or \$500K, I still have a \$400K exposure to real estate and everything that means, good or bad. If I have \$1M in stocks, that’s my exposure, whether I own it outright or on margin. This goes to my original comment, why the OP is researching this. – JTP - Apologise to Monica Nov 19 '18 at 0:34 