Well, FWIW Jonathan brought up the debate here as well. And many of the arguments seem to be the same both ways. I have a great big reply on that blog, but I can do the quickie version here.

The fundamental formula is simple:
net worth = assets – liabilities

So all of the arguments basically settle around the very definitions of asset and liability. Given that the layman’s definition and the business definition of asset seem to actually differ, it’s no wonder that nobody can agree.

What makes the whole thing worse, is that people (in general) are actually really bad at detecting liability, b/c most of us never do any type of “depreciation calculations”. Here’s the classic example.
1. I’m driving a 5k car with worn tires. I buy $600 of tires and put the car up for sale, is it worth more or less?
2. I’m driving a 5k car with new tires (installed yesterday). After 1 day of regular driving, I buy $600 of new tires. Is my car now worth more or less than 5k?

It seems trivially obvious that replacing car tires should change the value of the car, but who knows how much? Nobody’s car is actually @ “Bluebook value” (or whatever book you use), it’s all just a baseline. And this is happening everywhere.

If I replace my entire wardrobe (everything!) for $3000 tomorrow, it’s not worth that much next December. It “feels” like I still have 3k in clothes, but I really don’t, some of it is going to wear and need replacement at some point. But who do you know actually calculates that number with any measure of accuracy?

The same reality is true with houses and cars, just on a bigger scale. People are notorious for complaining about the cost of car/home repairs as if these costs were somehow “unexpected” rather than simply liabilities which they had ignored. Owing $1500 to the bank on a car loan is no different than having driven the car for a year without any maintenance. It “feels” different, but really that car is accumulating a “liabiliy of repair” with every mile that you drive.

So do you include personal property in net worth? Probably, but it’s likely not “worth” what you think it’s worth and it’s probably depreciating at a rate that you’re not tracking correctly (unless you’re a CMA doing your own paperwork). So at some point you have to do an “accurate” guess of your major assets and discount that number by a percentage based on liquidity, volatility and rate of depreciation. And then you have to ignore things that “not material” or relevant to your net worth and you have to scale these out as you grow.

Figure that out and you’ve got the holy grail of “net worth”… sounds easy :)

Mike

As for me, I don’t earn enough to even consider that an option. That being said, I’m blogging more to give a voice and for others to give me feedback as I learn than for pure monetization.

Will look forward to your reply. All the best!

Maybe you should get yourself a good accountant ;-)

[...] Million Dollar Journey wrote an interesting post today on Weekend Reading – Dec 28, 2007Here’s a quick excerpt Even though this week was slower in terms of traffic and blog posts in the blog world, there have been some great links that I would like to share with you. The Digerati Life hosts the Christmas Edition of the Carnival of Personal Finance. MDJ submitted the post that compared the net worth of various PF bloggers and was chosen as an editors pick! CBC reports that over 5 million Canadians hit the stores during the boxing day sales. Were you one of them? I was! Thicken My Wallet answers the [...]

[...] Original post by Million Dollar Journey [...]