Posts filed under ‘net worth’
Most of us who save our pennies and hoard our dollars are saving with some particular goal or number in mind. Sometimes we’re saving for something small like a special dinner out with friends, a new dress, or new rugs for the dining room. Sometimes we strive for something larger like a kitchen renovation, new photography equipment, or a two-week vacation. Outside of these small and medium sized goals sits that one humongous goal that feels like it’s never within reach.
Ever since I bought my first house I dreamed of saving enough money to pay off my mortgage. I don’t actually intend to pay off my mortgage in one fell swoop but I love the idea of acquiring enough money to cover our debts and to date our mortgages are the only debts we hold. When we bought our second home my goal expanded by quite a large margin, as our second home was more than double the price of our first one.
At some point quite awhile back we hit the first goal and accumulated enough cash and securities to cover the first mortgage. With the first mortgage “covered” I started taking a peek at the bank accounts to see just how far we have to go on the second mortgage. My off-the-cuff calculations are similar to calculating net worth. I compare our debts against our assets and figure out how far we have to go to get to the plus side. The difference between my numbers and typical net worth calculations is the absence of retirement savings or home equity. My true goal is to have enough cash and assets in non-retirement accounts. Of course, even those numbers are invalid considering the taxes I’d have to pay on capital gains.
We still have a very long way to go to meet the magic number that would cover our second mortgage, but the good news is that every month our mortgages shrink ever so slightly. We hold 15 year mortgages on both our homes, so while our savings grows our mortgage falls and sooner or later the two will meet in the middle.
The image above represents our current net worth including the liabilities on our mortgages but not including the value of our homes. According to the graph above if we cashed in all of our investments today my husband and I would have just enough money to pay off our mortgages. I removed the actual dollar figures for reasons I have discussed at length in previous posts, but you can clearly see that the green net worth bar is now slowly moving up, while the red liabilities bar begins to inch down.
In reality, although our assets are now greater than our liabilities, we couldn’t exactly cash out and pay off our mortgages. The majority of our investments are stored in retirement accounts, which would incur hefty taxes and penalties if we sold them. I don’t want to work out a whole bunch of fancy math to figure out just how much we would need to pay off our mortgages in full, the important thing is that dollar for dollar our assets have surpassed our remaining liabilities. Plus we would never sell off everything to pay our mortgages, but it’s nice to know that we could if for some reason we needed to.
This month our net worth has finally exceeded our liabilities. Now we all now net worth is the total value of property minus debts. Net worth itself is a tricky subject, a lot of people believe a household’s primary residence should not be included in the net worth calculation. It is certainly excluded when calculating millionaire status. In our case, assets can be broken down into four main categories: rental home, retirement accounts, primary residence, and non-retirement accounts. Any way you look, it’s nice to see the liabilities shrinking as our assets grow.