How Much Does Your Networth Grow a Year?

Submitted by ltsddd on July 20, 2016 - 7:40pm
>5x Annual Gross Income
0% (0 votes)
2x AGI
11% (2 votes)
1x AGI
21% (4 votes)
0 - 1x AGI
63% (12 votes)
Is there a choice for negative?
5% (1 vote)
I am a trust fund kid
0% (0 votes)
Total votes: 19
Submitted by Escoguy on July 20, 2016 - 8:37pm.

Actually it's all over the place but I think about 1.5X AGI is right for last few years.

Given total net assets are about 3.5M (gross 5M) and an 8-10% increase per year is not unusual but don't plan on going forward. 1.5M in mortgages (80% fixed) with WACC of 3.07%.

So 250K increase and 120K income would be 2X this year.

Saving is actually easy now as the cash flow from five rentals covers all my expenses. Anything earned from work can be kept net of income taxes.

(My income was higher in the past having worked abroad almost 20 years).

My personal projection for net worth growth is about 5.5M or 30K/month over the next 15 years.
That would mean going from 3.5M to 9M over 15 years.
Change projected:
2M property appreciation from 4M to 6M over 15 years at 3%/year.
Pay down principal 600K
Investment income 900K-1.3M (real return target of 4.5% annually)
Likely inheritance 400K
Work 1.1M (96K/year net for 10-11 years) based on 120K pretax income

Next 8-9 years expect 3-4X AGI, then in retirement about 10X AGI.

I may choose to give more away though. Most charity work has been with loans up to now to build capital facilities such as a school, retreat center or other capital items.

Submitted by ltsddd on July 20, 2016 - 9:18pm.

I only started to track my $$ closely the last few years and it's pretty crazy to see how it swings (both up and down). This year is a bit strange. Market doesn't seem to do much, but I have already hit the 1x mark. My goal is to consistently hit >= 2x for the next 5 years. May be then I'll quit my job and just go fishing.

Submitted by flyer on July 21, 2016 - 5:16am.

As our net worth grows each year from many sources, we've projected that it should take care of us, our kids, and grandchildren for the long-term, and since none of us can take it with us, it's great knowing we can pass it on to the next generation.

Submitted by dumbrenter on July 22, 2016 - 11:14am.

I am slower than my normal slow thinking, but how can your net worth grow more than AGI? AGI includes cap gains, dividends etc., so if your AGI is say, $300K, your net worth at a max (assuming you had no expenses) should grow <= $300K.

am sure i am missing something here... could help out this slow guy please :-)

Update: It just occured to me! If you account for unrealized cap gains and increase in asset value (homes) your net worth will increase but your AGI will not.

Submitted by FormerSanDiegan on July 22, 2016 - 12:08pm.

dumbrenter wrote:

Update: It just occured to me! If you account for unrealized cap gains and increase in asset value (homes) your net worth will increase but your AGI will not.

In addition to unrealized capital gains... debt reduction and increases in non-taxable accounts will also add to net worth but not AGI.

Submitted by ltsddd on July 22, 2016 - 1:52pm.

dumbrenter wrote:
Update: It just occured to me! If you account for unrealized cap gains and increase in asset value (homes) your net worth will increase but your AGI will not.

FWIW. I don't include real estate properties in my calculation.

Submitted by FormerSanDiegan on July 22, 2016 - 3:15pm.

ltsdd wrote:
dumbrenter wrote:
Update: It just occured to me! If you account for unrealized cap gains and increase in asset value (homes) your net worth will increase but your AGI will not.

FWIW. I don't include real estate properties in my calculation.

Net equity in rental property is typically considered part of one's net worth.
I've heard of some folks excluding equity in their personal residence when considering their net worth, but it depends on the context. Most definitions of net worth also include personal residence, since it is an asset, and the mortgage against it, since that is a liability.

If you don't consider property as an asset, then do you also disregard the debt against that property as a liability ?

Submitted by FormerSanDiegan on July 22, 2016 - 3:19pm.

... one step further ...

Person A owns their residence, valued at $500K free and clear and has $500K in investments.

Person B has a residence worth $500K, debt of $500k against it and $1M in investments.

Which person has a higher net worth ?

(Hint: person A is the same person as person B one day after they paid off their mortgage by selling half their investments).

Submitted by ltsddd on July 22, 2016 - 4:21pm.

I agree with you guys. I do keep track of the values of my props. I don't include them in b/c I think they're no that meaningful - especially with how the values swing wildly month-to-month and from website to website.

Submitted by Escoguy on July 22, 2016 - 4:34pm.

I think about equity in two parts; booked and unbooked.

For me booked is the amount I can realize under most market circumstances even if there is a moderate downturn.

Unbooked may include the increase for the past 2 or so years in the even there is a downturn.

I'm aware of the unbooked equity value but don't use it for any real planning or action.

Submitted by Coronita on July 22, 2016 - 4:42pm.

My net worth sank last year. Cutting a check to pay off a mortgage sunk it. Now I am living off Raman noodles to rebuild my net worth.

Submitted by mixxalot on July 22, 2016 - 4:46pm.

Not fast enough :-(

Submitted by ltsddd on July 22, 2016 - 4:54pm.

flu wrote:
My net worth sank last year. Cutting a check to pay off a mortgage sunk it. Now I am living off Raman noodles to rebuild my net worth.

That should help with your NW growth moving forward since you have one less (big) expense item to worry about.

Submitted by dumbrenter on July 23, 2016 - 9:36am.

Escoguy wrote:
I think about equity in two parts; booked and unbooked.

For me booked is the amount I can realize under most market circumstances even if there is a moderate downturn.

Unbooked may include the increase for the past 2 or so years in the even there is a downturn.

I'm aware of the unbooked equity value but don't use it for any real planning or action.

That's a nice twist on what IRS calls realized and unrealized gains.
at the end of the day, we can define net worth the way we want it, but it matters (outside of our worth as we value) only if we want to take on more debt. And in that case, it is how the banker defines the net worth that matters.
Are there any cases where net worth matters outside of this scenario?

Submitted by scaredyclassic on July 23, 2016 - 9:43am.

dumbrenter wrote:
Escoguy wrote:
I think about equity in two parts; booked and unbooked.

For me booked is the amount I can realize under most market circumstances even if there is a moderate downturn.

Unbooked may include the increase for the past 2 or so years in the even there is a downturn.

I'm aware of the unbooked equity value but don't use it for any real planning or action.

That's a nice twist on what IRS calls realized and unrealized gains.
at the end of the day, we can define net worth the way we want it, but it matters (outside of our worth as we value) only if we want to take on more debt. And in that case, it is how the banker defines the net worth that matters.
Are there any cases where net worth matters outside of this scenario?

social status is related to health. i duspect net worth correlates with potency.

Submitted by Coronita on July 23, 2016 - 10:21am.

ltsdd wrote:
flu wrote:
My net worth sank last year. Cutting a check to pay off a mortgage sunk it. Now I am living off Raman noodles to rebuild my net worth.

That should help with your NW growth moving forward since you have one less (big) expense item to worry about.

I have one big expense left called college. I figure, we will be disqualified from financial aid, lol. so I am assuming we are on our own on that one.

I figure $200k, should cover most 4 years undergrad, with a goal 1/2 being from 529 plan and 1/2 being elsewhere from after tax account... I was surprised about how well the 529 plan has done. I think I've only contributed about $32k over the past 9 years by dripping a few hundred each month into it and doing nothing by picking the most boring index funds out of the Nevada plan run by vanguard, and currently the account sits around $76k. So around another 4-6 years, hopefully with compounding and the few hundred each month (which is equivalent these days to not eating out a few nights out each month) , it will reach it's target of $100k by that time. And by chance, if at the end of it, the 529k ends up being more than needed, kids get subsidized grad school by Bank of FLU, lol.

Submitted by Coronita on July 23, 2016 - 10:23am.

FWiW I consider "effective net worth" as everything that is you could sell without requiring you to make significant lifestyle changes.

So, in that case, it doesn't matter how much your primary house is worth. It's not counted toward your "effective net worth".

So at best your primary home contributes $0 to your effective net worth, and at worst is a persistent liability that takes away from your effective net worth so long as you have outstanding operating costs to keep it.

It's like owning a car.

Submitted by FormerSanDiegan on July 25, 2016 - 10:15am.

flu wrote:
FWiW I consider "effective net worth" as everything that is you could sell without requiring you to make significant lifestyle changes.

So, in that case, it doesn't matter how much your primary house is worth. It's not counted toward your "effective net worth".

So at best your primary home contributes $0 to your effective net worth, and at worst is a persistent liability that takes away from your effective net worth so long as you have outstanding operating costs to keep it.

It's like owning a car.

I think it depends on the situation whether folks should include their primary in their net worth. It depends what they plan to do with the property (e.g. live in it forever, use as rental in future or sell it and live on a boat) and also why they are computing their net worth in the first place (estate planning, retirement planning, or for the purposes of answering surveys on Piggington).

If people don't include your primary, should I include the capitalized rent I need to pay as a liability if I am a renter ?

Again, that depends on what the purpose is.

In my case I have zero desire to continue living in my primary when I retire. It's in an area that I like in terms of convenience for my work and school... it's also about twice as expensive as the neighborhood where my rental property is located...
When my kids are out of school and I am done working full-time, I'm moving back to the area where my rental is located. So, I do not completely ignore my primary home equity when doing long-term ( but hopefully less than a decade) planning.

Submitted by harvey on July 25, 2016 - 10:53am.

flyer wrote:
As our net worth grows each year from many sources, we've projected that it should take care of us, our kids, and grandchildren for the long-term, and since none of us can take it with us, it's great knowing we can pass it on to the next generation.

I think the OP was looking for a number.

Submitted by harvey on July 25, 2016 - 11:09am.

FormerSanDiegan wrote:
... one step further ...

Person A owns their residence, valued at $500K free and clear and has $500K in investments.

Person B has a residence worth $500K, debt of $500k against it and $1M in investments.

Which person has a higher net worth ?

(Hint: person A is the same person as person B one day after they paid off their mortgage by selling half their investments).

The basic approach for personal net worth would be along the lines of the "accounting equation" that is the basis for financial accounting:

https://en.wikipedia.org/wiki/Accounting...

Pretty simple and obvious. Of course the definition and valuation methods of assets and liabilities quickly become extremely complicated. Financial Accounting professors make a career out of such questions.

For personal net worth, it's arguable that assets that are not liquid could be left out of the calculation. If you do that, you should also ignore any debt that corresponds with that asset.

Change in net worth relative to AGI is an interesting metric. It likely varies quite a bit across social strata as a crude measure of how the "rich get richer."