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I recently was a good little consumer and picked up a relatively expensive set of new home furnishings, some furniture, a TV, some other electronics ... items of that nature (don't worry, been budgeting for many years).

My question is: I keep a running tally of a rough "net worth" and items of this nature, while not enormous contributors, are contributors none the less.

Assuming there is a significant differential between what something costs new and what I could sell it to another individual for, how do I consider property for the purposes of estimating a net worth?

Options as I see them:

  • use the dollar amount it would require to replace the item new
  • use the dollar amount I could reasonably expect to receive from a sale of the item
  • including the value of property one owns in a net worth calculation is silly

I feel I could make arguments for any of them. My personal inclination is that if I want to maintain a certain lifestyle, then I am purchasing the item either new or used depending on that lifestyle. If the lifestyle demands new, I value at new, if the lifestyle accommodates used, I value at used. Essentially, value the asset at the expected mode of replacement if it was lost.

To be clear: I do not mean the value of real estate. I also do not mean the value of an item as it pertains to say, insurance. That is to be worked out by the contract with the insurance company, i.e. "do I insure based on replacement costs, or price I could sell at?" That is not my question.

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  • Little help with tagging here... I tried to think of some decent tags, and only came up with these. Perhaps someone is more Jedi than I? – Glorified Plumber Oct 7 '11 at 3:38
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    These are the tags you are looking for. <hand wave> – Chris W. Rea Oct 7 '11 at 15:43
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    You bought a shiny new Apple computer a few years ago. Now it's all worn out and busted, and would cost $2000 to replace. Do you think that worn-out computer that nobody wants contributes $2000 to your net worth? Would you rather have that worn-out old computer than $2000? – user296 Oct 11 '11 at 1:51
  • No but theoretically, if one kept up at it, say every 3 years you purchase a new one. Which immediately pulls $2000 from your cash part, and replaces the previous laptop, w/ some new arbitrary value < $2000. – Glorified Plumber Oct 11 '11 at 2:27
  • Yeah, you could say you lose 1/3rd of the price when you first buy it, then a further third of that on the first anniversary, and so on. As I say below, whether this is worthwhile or not depends on what you're using the data for. If you get a tax benefit from doing home work on that laptop perhaps it's good to treat it that way. – poolie Oct 12 '11 at 0:28
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You are not asking for insurance purposes. So I'll go with this -

I have two asset numbers I track. All investments, retirement accounts, etc, the kind that are valued at day's end by the market, etc. From that number I subtract the mortgage. This produces the number that I can say is my net worth with a paid in full house. The second number simply adds back the house's value, give or take.

Unless I owned art that was valued in the six figures, it seems pointless to me to add it up, except for insurance. If my wife and I died tomorrow, the kid can certainly auction our stuff off, but knowing that number holds no interest for us. When most people talk 'net worth', I don't see them adding these things up. Cars, maybe, but not even that.

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  • This got necro'd. I think you are right, when people do speak regarding "Net Worth" they include their house... maybe, and expensive public stuff. TV's, cars, couches, nice bbq's, etc. don't figure. – Glorified Plumber Jul 30 '13 at 17:53
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You're asking for opinions here, because it's a matter of how you look at it. I'll give it a shot anyway.

For insurance purposes - there's a clear answer: you insure based on how much it would cost you to replace it. For some reason, you're considering as a possibility negotiating with the insurance company about that, but I've never heard of insuring something at a "possible sales value" unless you're talking about a one of a kind thing, or a particularly valuable artifact: art, jewelry, etc. That it would be appraised and insured based on the appraised value. Besides, most of the stuff usually loses value once you bought it, not gains, so insuring per replacement costs makes more sense because it costs more.

As to your estimations of your own net worth to yourself - its up to you. I would say that something only worth what people would pay for it. So if you have a car that you just bought brand new, replacing it would cost you $X, but you can only sell it for $X-10%, because it depreciated by at least 10% once you've driven it off the dealer's lot. So I would estimate your worth as $X-10% based on the car, not $X, because although you spent $X on it - you can never recover it if you sell it, so you can't claim to have it as your "net worth".

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  • +1 for it is up to you. Unless your selling stock in yourself, it is a personal measurement for personal reasons. – MrChrister Oct 7 '11 at 5:02
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    This question isn't tagged with a geographical area, but just in case it's relevant to the UK: over here insurance for home contents can be either "new for old" (in which case you value each item at what you would have to pay to replace it with a new one) or "like for like" (in which case you take into account depreciation when valuing). – Vicky Oct 7 '11 at 11:14
  • As much as I would dig living in the United Kingdom, I have to live with the United States for now. Portland Metro... – Glorified Plumber Oct 7 '11 at 16:58
  • This got necro'd: I agree with the second portion of your answer here. I can never recover it, so why claim it. I like also that you point out the issues with continuously updating the worth of depreiciating items. I like this answer a lot, but, I think I go with Joe's. I am going to however adjust my net worth calc to reflect what you've said and remove depreciating assets like my car. – Glorified Plumber Jul 30 '13 at 17:56
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My opinion: including the value of depreciating property one owns in a net worth calculation is silly - but could be interesting

You don't expect your TV or laptop to gain value. Instead, you expect them to decrease in value every year until you replace them. Anything you expect to hold or increase in value (art, a house, etc) is a different story.

If you'd like to really get anal about this, you can track your net worth like a business would track its balance sheet. I'm not going to go into detail, but the general idea is that when you purchase an item, you debit the cost from "cash" and add the value paid to "assets" (so your net worth doesn't change when you make a purchase).

You then depreciate the value of the item under "assets" according to a depreciation schedule. If you plan on replacing your laptop every three years, you might subtract 33% of the value every year.

This could be an interesting exercise (i.e. even if you make money, your net worth may decrease because of all the depreciating junk you own), but my hunch is that it wouldn't be worth the effort it requires.

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    I generally agree - I wouldn't include depreciating household assets (i.e. all of my junk!) in my net worth calculation. With one exception: my car (as others have mentioned). It's a non-trivial amount, and when I first included it, it was there to offset a loan (now gone). Every six months I mark the car's value down accordingly, to what I could reasonably expect from a sale. – Chris W. Rea Oct 8 '11 at 12:37
  • @ChrisW.Rea, I agree too, and the rule I would use is include the value of property you are likely to sell, or property whose value matters for tax purposes. I probably will sell my car eventually, and it's useful to see how much I lost on it. I'm not likely to sell my TV, and if I did sell it because of say a long-distance move it would not fetch a substantial amount of money. – poolie Oct 10 '11 at 22:55
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There is no objective "should". You need to be clear why you're tracking these numbers, and the right answer will come out of that.

I think the main reason an individual would add up their assets and net worth is to get a sense of whether they are "making progress" or whether they are saving enough money, or perhaps whether they are getting close to the net worth at which they can make some life change. Obviously shares or other investment property ought to be counted in that.

Buying small-medium consumer goods like furniture or electronics may improve your life but it's not especially improving your financial position. Accounting for them with little $20 or $200 changes every month or year is not necessarily useful.

Things like cars are an intermediate case because firstly they're fairly large chunks of money and secondly they commonly are things people sell on for nontrivial amounts of money and you can reasonably estimate the value.

If for instance I take $30k out of my bank account and buy a new car, how has my net worth changed? It would be too pessimistic to say I'm $30k worse off. If I really needed the money back, I could go and sell the car, but not for $30k. So, a good way to represent this is an immediate 10-20% cost for off-the-lot depreciation of the car, and then another 12% every year (or 1% every month).

If you're tracking lifestyle assets that you want to accumulate, I think monetary worth is not the best scale, because it's only weakly correlated with the value you get out of them.

Case in point: you probably wouldn't buy a second-hand mattress, and they have pretty limited resale value. Financially, the value of the mattress collapses as soon as you get it home, but the lifestyle benefit of it holds up just fine for eight years or so.

So if there are some major purchases (say >$1000) that you want to make, and you want to track it, what I would do is: make a list of things you want to buy in the future, and then tick them off when you either do buy them, or cross them out when you decide you actually don't want them. Then you have something to motivate saving, and you have a chance to think it over before you make the purchase. You can also look back on what seemed to be important to you in the past and either feel satisfied you achieved what you wanted, or you can discover more about yourself by seeing how your desires change. You probably don't want to so much spend $50k as you want to buy a TV, a dishwasher, a trip to whereever...

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    I like this answer the most, I want to let a little feedback on it progress before I accept. I think you hit it on the head with the "making progress." "Making progress" implies progress towards a lifestyle, and, if you're lifestyle includes the items you currently own, then you wouldn't have to spend net worth to get them. But, if you needed 50k in items to achieve the lifestyle you want, you're net worth would be some dollar value lower. – Glorified Plumber Oct 11 '11 at 1:19
  • Thanks, Glorified Plumber, that is an interesting point. – poolie Oct 11 '11 at 22:09
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Valuation by definition is what an item is worth, not what you paid for it.

Net worth should be market value for fixed assets or "capital" goods. I would consider this cars, real property, furniture, jewelry, appliances, tools, etc.

Everything else can be valued by liquidation value. You can use valuation guides for tax deductions as a way to guide your valuation. Insurance companies usually just pick a percentage of your home's value as a guesstimate for content value.

I could see doing this as a way to guide purchase decisions for appliances, cars or the like. But if you are trying to figure out the market value of your socks and underwear, I would argue that you're doing something that's a little silly.

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