Which purchases should you depreciate and which ones should you expense in the context of personal bookkeeping (and not for tax purposes)?

My personal goal for bookkeeping is mainly keeping track of my (1) net worth, (2) income/expenses and for (3) budgeting. Guides I could find seem to base recommendations around tracking your net worth.

To elaborate on my difficulties with this advice based on a few examples:

  • A car should clearly be depreciated as it is important to your net worth and you want to have a good overview of its monthly/yearly costs.
  • Clothing doesn't really contribute to your net worth and is usually bought yearly, so expensing purchases doesn't cloud your overview of expenses.
  • But e.g. furniture, laptops and bicycles are expensive enough to distort your overview of expenses (you don't buy some every year), so you want to depreciate them linearly over the time they are used for the purpose of (2) and (3), but depreciate so quickly that you would want to expense them immediately for the purposes of (1).

So should you simply depreciate even these (unsellable) assets and ignore these when estimating your net worth, or is there some other approach if you still want to accurately track your expenses?

  • 1
    I suppose it matter what your goal is here as in this case you can account for things toward your "net worth" any way you choose. If you were a business and were creating a balance sheet or doing your taxes there are specific rules for handling these things. But your proposed metric is entirely of your own creation.
    – jwh20
    Sep 12 at 12:32
  • @jwh20 So depreciating assets linearly over their usage period to spread out expenses but not counting the value of these assets towards the "net worth" I want to track might be a sensible choice? Sep 12 at 13:44
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    Depreciation doesn't matter for purposes of net worth. Net worth is just assets minus liabilities. You can mark your non-cash assets to market periodically, and you should be good. Depreciation does matter for profit & loss, but for an individual cash flow is more important than profit and loss accounting. For example, the depreciation "expense" of your car is completely irrelevant to your household budget. For personal accounting it's most useful to count money out the door as expenses at the time of purchase. Only do depreciation and whatnot if tax requirements force you to.
    – Nobody
    Sep 12 at 16:29

Personally, I wouldn't bother because I don't consider my household goods when I'm calculating my net worth. When I'm thinking about my net worth, I want to know what I have available to me for meeting big goals (i.e. retirement, buying a house, etc.) I'm not going to be selling my couch to fund a vacation or to fund my retirement so it doesn't really matter to me what it's worth.

If you are going to count all your household goods as part of your net worth, they'd just be assets that you assign an (approximate) value to. If you buy a $1000 couch, your checking account balance declines by $1000, your household goods assets increases by $1000. Next year, the couch asset has declined to, perhaps, $800.

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