Net Worth considerations
Wednesday, May 23rd, 2007Five Cent Nickel has an interesting post about Net Worth vs Investable Assets. I think its interesting because it brings up something that’s been important to me. The bottom line number on net worth is useful, but knowing how much of it is liquid and available is often times more important. If I lost my job tomorrow my emergency fund would help, but the fact that I could sell my (very old) car for $500 wouldn’t help, since I need that car for getting a new job. Also, tapping equity in the house would be tricky (since that equity is probably not 20%) if I had no job. That easy-out-no-questions-asked equity seems to be drying up around here unless you’ve got more than 20% equity in the house.
I’ve been calculating my net worth monthly since the beginning of the year. I was nicely surprised how high it was in January (okay, not all that high but anything that’s not negative is pretty good) and it’s increased a bit each month. But when I do it, I put the liquid assets (checking, money market, savings bonds) at the top of the list of assets, and leave a gap before putting the 401(k)/IRA stuff, then another gap before “solid” goods like the house and car. At the bottom of the asset section I subtotal the liquid and retirement sections as well as doing a total of all assets.
So my net worth number at the bottom of the page is all assets minus all liabilities, but at least I can keep an eye of the liquid number. Perhaps I should add a section for montly debt obligations, since the mortgage total doesn’t really show me what my montly outflow is. Then I could keep a running tally each month of liquid+semi-liquid divided by montly outflow = months before sinking.