If you read “The Wealthy Barber” or “Findependence Day” or watch “‘Til Debt do us Part”, you will learn the same basics they have applied.

DAvid

Last month, your savings went from $37,500 to $7,500, a loss of $30,000. In the mean time, your mortgage went from $73,500 to $38,000, a decrease of $35,500. Therefore, the net deposit was $5,500. Add the $5,000 you put into your RRSP, the total was $10,500.

Also, how do you manage to dump $10,000 into your investment+mortgage month after month? (It was $10,500 this month and $9,000 last month IIRC) Even if you save 50% of your income, that would make your before tax income to be well over $300,000. I am under the impression that you don’t make that much.

Rents would be considered an expense – neither a liability nor an asset. If FT’s (evil?) twin brother sold his house and moved back in with his parents would he still not have the same amount of money in the bank from the house sale vs. if he decided to rent an apartment?

When you apply for a credit card, do you list your house as an asset at its current value or do you subtract future interest payments on your mortgage or rents?

I think of it this way – if for some reason I had to get rid of every tangible, wortwhile thing I own, how much would I get for it minus what debts I’d have to clear off. That becomes my net worth. Some people don’t factor in furniture (perhaps unless they have a lot of expensive furniture), some people don’t factor in cars, some people don’t factor in that valuable coin collection passed down by Uncle Herbert.

But, for most people, a house is an asset plain and simple and a mortgage is a liability plain and simple. (A house that is a money pit might also be a liability, if you know what I mean!)

Whether net worth really means anything to you is a personal choice. It is a metric and some people use it to show that they are making progress towards certain financial goals. I don’t know that it has much impact outside of your homestead other than when applying for credit.

Four Pillars: Good point regarding contribution amount compared to ROI. Even at maximum $20k in RRSP contribution room, that only accounts for about 6% yearly or 0.5% monthly towards FT’s net worth. Pretty impressive.

James: Theoretically, you can put values to every single item you own and put them towards your net worth since the definition of “asset” means – any item of economic value that could be converted to cash. But is it worth your time? By not calculating, you are also taking much more conservative approach. As long as you are consistent with your reporting, then it doesn’t matter. FT has been consistent throughout. Definitions of terms – assets, liabilities, and net worth – are pretty clear throughout any business and economic texts. I do not know why people try to redefine them and make them complicated than what they are. The cost of shelter is an expense, but if you borrow money to provide that shelter, then that money (mortgage) becomes liability. The vehicles are normally considered depreciating assets (unless collector’s and/or vintage cars), but nevertheless assets. You will more likely see people include them in their worth statements if there are liabilities (loans) on them and/or if they still have decent residual value.

The latter would probably be a higher number given your age, but the reality is, if you consider your home an asset, then you should consider your need for shelter a liability.

This is not the same for vehicles as you could technically liquidate them and not need replacement, however, I don’t include vehicles in my assets. I have many other items worth several $k, that I don’t count, so why would vehicles count.

Actually I believe there is no ‘right’ way to do this. FT and my goals are just that goals. We aren’t going to die or anything if we don’t make them. We try our best and if we beat them great, if not, well at least we tired.

FYI if anything right now I’m drifting downwards from my target date. I might hit FI around 43 based on the most recent calculations, but wait a few months I image that number will keep shifting between my range of 40 to 50 years old.

Tim