Three Ways to Calculate Net Worth (And How We Depreciate Our Assets)

Knowing your net worth is important. As is not confusing it with self-worth, but that’s a separate topic. There are different ways to calculate net worth, each of which will give you a different figure and is useful for a different reason. We actually have three different net worth calculations we maintain, each of which includes different assets. I’ll use this post to run you through the different calculations and how we depreciate our assets in each.

First up is the standard net worth calculation, i.e. everything you own minus everything you owe. Another way of looking at it is: If you sold everything today and used that money to pay off all your debts, how big would the resulting pile of cash be? This is otherwise known as liquidating your assets.

For this calculation, we include the following assets:

  • Both our properties (1x house here in NZ and 1x in the Philippines)
  • Both our KiwiSavers
  • Our car
  • Other investments such as Sharesies and Harmoney
  • The cash in our bank accounts

From those we then subtract our remaining mortgage balance and our credit card balance, which are the only debts we have currently. The credit card barely counts as we pay it off every month and never pay interest, but if we’re going to include the bank accounts we have to include the credit card, otherwise we’d be cheating.

We don’t include any of the contents of our house, e.g. furniture, TV etc. despite the fact that our retirement plan would involve liquidating those. So we may score a few grand in the future from a massive garage/Trade Me sale (that’s NZ’s version of eBay if you’re overseas). But we treat that as bonus money rather than part of our net worth as it’s just too difficult to know how much money it would yield until the time actually comes. I suppose we could just pick a very conservative figure and include that, but we prefer not to.

We currently depreciate our car at around 20% per year (simple, not compound), which seems to be accurate so far based on what cars similar to ours are going for online. I expect that within a year or two the rate will start to slow down significantly as we get closer to zero. We’ll keep an eye on similar models online and conservatively value ours at a bit less than them.

Using this standard net worth calculation, our net worth is $232,939.17.

Another way we calculate our net worth is using the financial independence net worth calculation, or at least our take on it. This is the calculation we use in our net worth posts on this blog. Whereas the purpose of the standard net worth calculation is to essentially answer the question: “How big a pile of cash could I amount right now if I wanted to?”, the purpose of the financial independence net worth calculation is to answer the question: “If I retired today, how big would my nest egg be?”

We do this calculation in accordance with our retirement plan of selling up here and moving to the Philippines, which means the equity in our NZ house is included in the calculation, but the value of our (freehold) house in the Philippines is not as we would be living there and could not derive any returns from it.

We also don’t include our car in this calculation, as the assumption is that we will be moving to the Philippines at about the same time our car hits maybe 200,000km on the odometer so it will have essentially lived its life at that point. Whatever we do manage to sell it for will be considered a bonus really.

Nor do we include the cash in our bank accounts (and therefore our credit card balance is excluded as well), as all that cash is essentially already assigned a job in our budget and will therefore be spent in the near future.

So as you can see, the goal is to obtain a conservative but realistic idea of how far along we are on the road to financial independence. Using this method of calculating our net worth, we’re currently at $188,171.49.

The final net worth calculation we run is essentially a backstop for if we ever decide not to go ahead with our retirement plan and stay in NZ instead. As part of our retirement plan, the idea is we’d only sell our house after being in the Philippines for a year or two so we could definitely move back if we decided it just wasn’t working for us.

For this calculation we now exclude the equity in our NZ house, but the Philippines house is back in as that becomes an investment asset in one form or another. We could either sell it or keep it with a view to having another crack at spending some time in the Phils in the future but renting it out and getting a return in the interim. The car, bank accounts and credit card are still excluded for the aforementioned reasons. Other investments are still part of the equation, as they are part of our net worth no matter how you slice it.

Using this calculation our net worth is $71,141.20.

Looking at those three numbers, it’s pretty clear why our retirement plan is the most desirable goal for us at the moment. It gives us the best nest egg in the shortest amount of time. If we stay in NZ the nest egg is much smaller, we’ll have to work for much longer. And the liquidation calculation isn’t really any use as there’s no point having a big pile of cash and nowhere to live so it’s only ever going to be a hypothetical calculation rather than a realistic one.

How do you calculate your net worth? Obviously I don’t expect most people to share numbers, but hearing different methodologies could be interesting.

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