Do You Include Your Home's Value in Your Net Worth Calculations?
Calculating your net worth gives you a good picture of where you are financially. You can compare your assets to your debts and see if you’re on the positive or negative side of that equation. Knowing your net worth can help you set goals and track your financial progress. You typically include all major assets and debts in a net worth statement, including those associated with your home.
Your Home as an Asset
Part of your net worth statement consists of a listing of your assets – things you own that have financial value. For many people, a home is their largest asset, and should definitely be part of their net worth statement. When you’re listing your home as part of your net worth calculations, you should use the current market value of the home, not the price you paid for the home.
Your Home as a Liability
The second part of your net worth calculations lists all your liabilities or debts. If you have a mortgage on your home, the amount you still owe on the home goes here. Just as your home is often your largest asset, it's often your largest liability as well. If your home’s value has fallen and you still owe a large portion of the mortgage, or if you’re “upside down” on the loan, the mortgage liability could cancel out the value of your home as an asset, but you should still list the home as an asset and the mortgage as a liability.
Other Assets and Liabilities
If you own a second or vacation home, these go on the asset side of the net worth calculations, also. The home’s furnishings are also an asset, as are your cars, valuable jewelry or art, and any investments you have, such as stocks, bonds and retirement funds. Cash, such as savings accounts, counts as well. If you have a second mortgage or home equity loan, this is another liability, as are credit card debt, student loans, car loans and other debt.
What It All Means
When you subtract the total liabilities from your total assets, the amount left is your net worth. This could be a negative number, especially if for those just starting out in life, who often have little savings and big debt. Later in life, as you pay down your mortgage, pay off student loans, and increase your savings and investments, your net worth will increase. If the value of your home appreciates over time, this also increases your net worth.
Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.