Assessment of Net Worth

(15-04-2011, 11:06 AM)d.o.g. Wrote: Perhaps the sensible thing to do is to compute net worth both ways:

1. Ignoring the house and mortgage; and
2. Including the house and mortgage

#1 would reflect the choices made with respect to consumption habits and investment skill.

#2 would take into account the choice of housing.

It doesn't take any extra work and you can then see things both ways.

Thanks yes, I think that would give a better perspective of growth of net worth and from these 2 measures, we can easily segregate out property, which is contentious as previously discussed. So by doing this we get 2 separate measures of net worth.

I think I will start doing this from end-April 2011. Currently, I am including ALL assets (cash, equities, insurance surrender values) versus my HDB mortgage to get net worth. I guess if I take (1) as a measurement tool, then effectively I can see my "total assets", since I have no consumer-related debt like unsecured lines of credit or car loans.

However, for (2), what would be a suggested discount rate for market value of property? Thanks!

Musicwhiz Wrote:what would be a suggested discount rate for market value of property? Thanks!

At the minimum you should take into account the agent fee (1%) and stamp duty (3%). 5-7% seems like a prudent rule of thumb. If you ask 10% below the market rate you can probably sell your house quickly (in less than 1 month), so 10% is probably the biggest discount you need to use.

As usual, YMMV.

why do a financial report on yourself, something like a quarterly report/annual report by the company?

2 different balance sheet: one balance sheet can classify your property as "PPE", the other one under "investment property".

your net worth will be the equity part of the balance sheet.

(15-04-2011, 11:14 AM)Musicwhiz Wrote:

(15-04-2011, 11:06 AM)d.o.g. Wrote: Perhaps the sensible thing to do is to compute net worth both ways:

1. Ignoring the house and mortgage; and
2. Including the house and mortgage

#1 would reflect the choices made with respect to consumption habits and investment skill.

#2 would take into account the choice of housing.

It doesn't take any extra work and you can then see things both ways.

Thanks yes, I think that would give a better perspective of growth of net worth and from these 2 measures, we can easily segregate out property, which is contentious as previously discussed. So by doing this we get 2 separate measures of net worth.

I think I will start doing this from end-April 2011. Currently, I am including ALL assets (cash, equities, insurance surrender values) versus my HDB mortgage to get net worth. I guess if I take (1) as a measurement tool, then effectively I can see my "total assets", since I have no consumer-related debt like unsecured lines of credit or car loans.

However, for (2), what would be a suggested discount rate for market value of property? Thanks!

Unless we are UHNWI with finances more complex than listed companies, this shouldn't be super-contentious. Things should fit into a single balance sheet.
We probably shouldn't exclude the mortgage, since it's a very real liability with cash payments due monthly.

In addition to net worth, how about looking at 'net current assets', i.e. current assets less all liabilities?
So your primary residence = non-current asset, but if you have investment properties, they're current assets.

I like to take shot on it from the perspective that people tend to compare. If we read from the papar on so and so has XXX asset the way to relate to us is a common baseline. Ignoring any significant material distort the full picture. Therefore i would include eveything physically practical possible if we are to convert all to cash at current time.

1. Apartment (Home current value)
2. Cash
3. Investment
4. CPF
5. Any loans
6. Car (if there is disposable current value to include)
7. Insurance surrender Value if done today
8. any significant things of re-sold value estimation. (May ignore if is not going change much your total value)
9. Antiques
...

Whether investible or not, is more on personal stance which you can deduct "internally" for your own reference or calculating retirement.
Some people maybe staying in Bungalow and can downgrade to 3 room. I can sell my car which use on weekend or i can take bus daily witth less luxury. Which free up more money.

A notebook after 3 years may not have much value to waste time on though you can use it for another 3 years.
Maybe subjective, but it should not significantly distort the final estimation. But a Home, loan, Insurance and CPF likely will and should be included when we say NET WORTH.


Cory

Hi,

I am always confused on how best to calculate when it comes to CPF? Can anyone enlighten me? What do you do?

I discount everything except OA since a major part of it is locked up in my primary residence. The rest are as good as useless since we can never take it out as and when we do need it. After all what you can see but cannot touch is as good as not yours.

flinger Wrote:I am always confused on how best to calculate when it comes to CPF? Can anyone enlighten me? What do you do?

I do not count my CPF at all i.e. I assume that for retirement purposes I will not be able to withdraw any money from my CPF. Seeing how the withdrawal dates keep getting pushed back and housing prices keep going up, I think this is a fair approximation.

As for using CPF OA to buy a house, since CPF money is pre-tax and buying a house is one of the few ways to use the money before the withdrawal age, I am all for it. In fact since everyone is using CPF to buy their house, it inflates prices and you are thus forced to use your CPF too. End result - we all pay more. Only the government wins (since most people live in HDB flats which are ultimately supplied by the government).

Not sure whether it's still topical, but from my point net worth meens a total value of all the goods that belong to a person. For example, look at the descriptions of celebrities' net worth at celebtopnetwroth. There you can see that net worth implies all the prosperity of famous people.

In my opinion, I think personal housing needs to be split into two variables before judging on net worth; mortgage loan and rental income.

Let's assume that there is a mortgage loan pegged to the house, it will mean liability. Without mortgage loan proceed to the next step.

As for rental income, unless the owner rents out, else there is no income hence not being able to generate cash and not deemed as an asset.

Net worth may include residential stay but definitely not part of overall valuation process.