Personal Financial Advice I'm Happy NOT To Follow
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- เผยแพร่เมื่อ 16 ก.พ. 2023
- There's a lot of financial advice out there. Not all of it applies to everyone.
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I think most people prefer not to talk about money because most people are embarrassed about their financials and would rather not open themselves up to being compared unfavorably.
My wife has alway run the home as she makes our income stretch but I have always managed our retirement funds as I understand the risk reward paradigm. That relationship has been a blessing and allowed us a to build our financial freedom while enjoying our family activities and our life as a couple. Thanks Erin for the reminder to listen to our gut about our retirement incomes.
This was a great list, especially relying on a lender to tell you what you can afford. They’re looking out for their own best interests, not ours.
I’m strongly against Dave Ramsey’s philosophy of cutting up/never using credit cards. I think it’s appropriate for certain people but I’ve never weaponized the ability to spend more than my means, so my relationship with credit cards is pristine.
Great job as usual, Erin!
That’s ok, your home equity is part of your net worth whether you choose to claim it or not. You can choose not to claim your arm is part of your body, but it’ll still be there either way! 😉
NW = what you own - what you owe ✅
Hahaha 🤣
@@ErinTalksMoney 😬
I count my home, because it is an asset - there is a value that the property value itself doesn’t capture. Mainly, my mortgage payment is never going up. No landlord is going to hit me with a 20% increase. Rent? Let’s just say, it doesn’t typically go down..
It also helps that my mortgage is about the cost of what some people spend on 2 fancy cars/trucks. Actually my monthly payment is pretty close to a car payment these days..
Your mortgage goes up in escrow due to rising property taxes. My house was bought in 2015 with yearly property tax of 2700. In 2023 it is 4600
Also your home value could go down at the point with which you sell to go into a retirement facility. You do not know what the future holds for housing markets crashes.
@@WheresWaldo05 that’s $150 a month. In that same time period, rents have gone from $1200 a month to $2500-$3500. That’s like a 10x difference- I’ll stick to the mortgage (my taxes haven’t gone up that much anyway). It actually dropped by $400 when I refinanced..
@@pixelpoppyproductions My mortgage is 1100 a month for a 3 bed 2 bath. Fully finished quality home with a 2 car garage. Renting is such a waste of money. Refinancing doesn't drop property taxes. I refinanced down to 2.875% in Feb of 2020
Just because one chooses to add the value of their home to their net worth, doesn't mean your net worth decides if you can retire. That would be dependent on your portfolio. But one could also sell their home, bank the cash (assuming no mortgage) and then rent. This alone could influence one's retire date by years!
I don't like someone telling others how much they need to retire without adding the consideration of where you retire.
Or knowing your lifestyle!
I really like the way you advocate that financial advice isn’t a one fits all solution. I have always avoided investing in property other than my home because I don’t want the drama of being a landlord. In Australia it is a drama, tenants have all the rights and I don’t want to play that game. I am much more at home with the stock market.
I have always used the alternative method you suggested as an option when it comes to net worth. One with the home included and one without. Then you get to celebrate becoming a millionaire twice 😉
Erin, I love your videos. Your presentation style and tone is amazing and draws listeners in and you explain financial concepts beautifully! ❤
Thanks so much! 🙏😊
I think the point about including (or not including) the house equity in the net worth amount is especially important when people live in areas with extremely expensive homes. Like you showed, a person with 750k invested in a fund is in a different spot than somebody with 250k invested.
Her example is misleading. One doesn't use their net worth to determine their retirement readiness but uses their portfolio. Understand that the house could be sold, alleviating the cost of home ownership and start renting.
@@thegrimmperspective "Misleading"??? Respectfully, I think you should listen to it again to hear what she actually said. She literally said @3:40 ". . . and we hope one day when we go to sell it [her house] to extract value from it, to sell it at a higher price." Your post makes it seem like she didn't explain or understand that a house could be sold and the equity could be used as cash. Or, worse, you make it sounds like she said something to "mislead" viewers.
Also, I listened back to that entire segment and it was clearly about two ways to calculate net worth and whether or not to include the home value in it when determining "financial freedom." She wasn't talking about "retirement readiness" and never mentioned that phrase. You said that phrase. And she literally sketched out multiple scenarios to explain it and encouraged viewers to calculate two versions of net worth, "one that includes your primary residence and one that doesn't."
If you go back and watch the video again and listen to her actual words, can you really say that what you wrote is accurate?
@@alexanderlyon respectfully, she may not have used the terms of "retirement readiness" but she created three scenarios of "income streams" using the 4% rule with and without the use of a home when considering a particular net worth that I thought was misleading. It simply was an example that agreed with her concept of not using your home to determine net worth. I don't consider using my net worth or my portfolio for that matter as income streams until I'm in the distribution phase of my life.
I realize that she said there was value in her home, and for that exact reason why she or anyone for that matter should use it in calculating their net worth. IMO, your net worth "statement" has a different purpose than determining income. This statement should reflect an individual's or couple's financial progress over time, not to be used in determining future income streams. So don't use these inflated values for your homes that can grossly fluctuate with the markets. I'd suggest sticking with your purchase price.
Great topic, although financial professionals understand that there is an indisputable formula for net worth. Just as 2+2=4, net worth has its own formula whether people choose to use it or not. Net Worth isn't the value of your income producing assets. It's simply what you own minus what you owe. Perhaps I can't so easily dismiss my formal education. Lol
actually finacial professionals do not understand and net worth is not an indisputable formula. Net worth can also include squishy things like the value of your brand or intellectual property. net worth for individuals is a useless metric. For companies, book value is necessary evil because of taxes and access to money. Not every business term has use or meaning when it comes to personal finance. Whereas say a bank may not increase a line of credit or loan to a business because of the company's book value (aka net worth), a bank doesn't include your investments when you want to get a personal loan. the fundamental question is whether calculating your net worth is a meaningful benchmark for your financial goals. I don't find calculating net worth a useful exercise. If I did, I would say my networth is over $1trillion, because that is how much I believe I'm worth and I have zero flaws, therfore that $1trillion has zero liabilities against it.
@@hanwagu9967 I appreciate your perspective. However I've been an MBA for over 40 years, so I'm pretty sure I understand net worth (both personal and corporate). Net worth is essentially a measure of wealth. You're correct to infer that having wealth doesn't necessarily presume that it's productively creating income. That's why I refer to a paid off mortgage prior to retirement as "dead money". However I disagree that net worth is a useless metric for personal finance.
@@hanwagu9967 btw, Net worth should generally only include assets that could be converted to cash within 12 months. While that could include the value of certain businesses it would probably exclude "squishy things" like a subjective brand value until the brand was sold and value was realized.
Age 56 and looking forward to retirement, best advise stay the course invest early and invest growth but don’t speculate. Pay yourself first and don’t creep lifestyle. And best advice have a zero based budget and buy a program like quicken to follow everything. And my home is included in net worth , it’s assets minus liabilities, I can sell my home at any point and rent.
So true about debate about including your home in net worth. I do include it in mine, for various reasons. While I plan to continue living in mine when I retire, many people plan to sell theirs and downsize, or maybe do a reverse mortgage. This clearly will generate income for them. I also see it as generating wealth, as over time, houses generally increase in value. The key is to be very conservative, as values do fluctuate greatly. I know a lot of people don't include the home because they may be difficult to sell depending on the market. This is true. Remember, there is always the own vs rent question. Maybe at some point, it makes sense to sell and rent. However, I always ask youger people, such as yourself, do you include the value of your traditional 401k or IRA? If you needed that in an emergency, how much is it really worth to you? In your net worth, if under 59 1/2, do you count the present day value, meaning reducing the amount by the 10% penalty, and taxes that would be due?
Or do you include the total value of the 401K because it's tax deferred? Maybe we should only count it if it's in a ROTH. Wait a minute, it's all depreciating assets when considering inflation! How will we ever retire. LOL
Of course, net worth should include the value of your retirement account, as well as your home equity. Separately, you should keep track of your passive and semi-passive income by source with associated goals.
Thanks as usual for the great content!
On the net worth subject I believe like you that anyone can view it as they see fit. But for arguments sake I think you view your net worth solely for retirement investment planning. I don’t think that was the purpose of net worth at its core definition. I keep the categories separate for the purposes of retirement planning but for viewing assets as total net worth I like to lump them all together. I don’t carry debt anymore but when I did it was interesting to watch the net worth balance shift as it was being paid off.
Erin: My home has one main function ....
Me: To keep you out of the rain.
Erin: .... it is a place for my family and I to live.
Me: I stand by my preference for dry living.
We need a live chat with your husband. We need to know how he found you and how he tricked you into marrying him. The young guys need to know if you have a like-minded sister. Important stuff like that. 😁
😂 - my hubby and I sat next to each other on an airplane, that’s how we met! So my advice is travel! And I don’t have a sister 😂 Steve will actually be in at least one upcoming video - maybe 2!!
And I 100% agree, a home keeps you out of the rain haha
Erin Talks Money is probably the best most practical platform for an individual/couple to develop a realistic life style and financial plan to help work towards financial independence/freedom .
Erin your advice has been spot on to me. That's why I am the self appointed president of your fan club!
Yay!! 😂
Great video. Thanks for the insights.
Agree that the focus shouldn't be on maximum net worth, but maximizing income streams. And minimizing tax. House rich and cash poor is the gateway to high stress, bad health, and unhappiness. Buy what you need, invest the rest, you'll be happier. Not to mention get to FI faster. Sorry to see no Open Money episode this week 🙁
That's a wrap on Open Money - I won't be posting them anymore - they just don't get enough views and they are hurting the overall channel performance 😔
@@ErinTalksMoney Sorry to hear that, but you gotta do what you gotta do. Thanks for giving it a shot, enjoyed it while it lasted.
I disagree with your net worth calculation and think it could be confusing to people. A home is an asset and should be included in your net worth by definition. It doesn’t matter if it’s an income source or not. Not all assets generate income, but are still assets. My job is an income source, but not included in my net worth stmt. If you only want to look at assets that generate income, that is a separate calc. I think sources of income such as jobs, investments, pensions, SSI, should be calculated separately as various sources of cash flow.
I know it is far more common to include your home in your net worth, and I know there are people who feel very strongly about including it. To which I say, absolutely include it! (I just don't include it in my personal situation 😊 nor do I have any desire to)
@@ErinTalksMoney one just has to simply understand the difference between their net worth and their portfolio. You said it yourself, you put money into your home (invested) to see the returns later.
I suppose you could view having separate calculations for everything is demonstrating the useless futility in calculating net worth. Does calculating net worth get you lollipop?
100% agree with you about house and net worth. Cash in the bank, you would be appalled at what I keep but the market lately scares me
I try to stay away from money talk with friends as I find it is an easy way to put someone (or myself😂) down or appear boastful. Totally agree that it makes sense not to count the home in net worth!
Net worth and portfolio are two separate things.
I happily talk to friends about finance, key is to know your audience. If you know you are on different footings, speak more in generalities and philosophy rather than numbers.
I consider my home an important part of my net worth, but I don’t include depreciating assets, like vehicles.
That's fair!
Depending on when you bought your home, it could depreciate. Just because the car is likely to depreciate, not necessarily the case over the last couple of years, doesn't mean you can't update your portfolio with the depreciating value. One might consider your banking account a depreciating asset for the future cars you might purchase?? :)
Great video. Yes my situation is unique. It's not your net worth but your income (I'm retired now). I was able to develop may angles to promote income from different areas so that I don't rely on one or two. The 4% rule is interesting but applies to almost no-one. If I did that I would wind up with a bunch of cash sitting in my savings account, doing nothing, because I don't want it yet. Vanguard wants me to have a monthly income -don't need it yet. And the bank telling me how much house I could afford was always funny to me. If I had followed their advice I would be very house rich and everything else poor. Cover your fixed expenses and re-direct your variable expenses. Invest in experiences and not stuff. The U.S. has more self-storage places then the rest of the plant combined.
I don’t like to count home equity in my net worth estimates. Being mortgage fre does help with monthly cash flow.
Finance is Personal !!, love all the graphics and subtitles. You do excellent work Erin. I probably would think my home is part of my net worth if it was a large portion of my estate or I was planning to sell it and use the money in retirement. Love the way you broke down the differences of including your house options.
Great advice to seek out multiple people for advice and to make sure their advice fits their knowledge. As far as you saying you are not an Expert…The Money Guy’s say 10,000 hours = Mastery. I am going to assume to have achieved Mastery of personal finance based on my assumption that you have passed to
the 10,000 hours a long time ago.
Enjoy the weekend,
Tony
Love The Money Guys! I'm in the camp with them when counting your home as part of your net worth. They however suggest keeping the value of your home based on the purchase price and not some inflated number that quickly changes with the market. Your net worth statement is a time valued way to keep track of your overall financial well-being.
I do agree with many things TMG puts out there, but the whole our formula is better than dave ramsey's formula because it gets you into a house, blah, blah, blah, is just cringeworthy. For example, things like gross vs net pay in comparison to DR for housing costs, etc., so we think you can afford $x house. It's just cringe.
A home doesnt serve as an income source, but it does reduce one of your main expenses: rent.. and that kind of coutns as an income stream equal to what you would have paid in rent
In practice, a guy who pays $3000/month in rent, and has an income stream of $3000/month is equivalent to a guy who bought a house and has no rent and no income stream
It might seem like a wash but keep in mind that the homeowner can always liquidate a portion of the equity through the use of a reverse mortgage This option will not be available to the renter.
I tend to agree, it’s an asset whether it pays me or just sits and gains value.
@@sergiosantana4658 yeah, but it comes at a cost, where you are literally losing money. a reverse mortgage is still a loan and a loan that only making available a fraction of your equity at extremely high costs. So, you are actually losing versus the rentee.
Time honored way of handling this question...especially when buying a car:
Sales Rep: Sooooo...what would you like your monthly payment to be?
You: Im willing to go as high as $1 per month.
Sales Rep: No seriously....what would you like your monthly payment to be?
You: I am serious. I am willing to go as high as $1 per month.
Sales Rep: (red faced...muttering....mad....)
You: Now that you know that I know what you're trying to accomplish with your qualifying closes, let's start over and you can start with telling me how much it costs. We can chat about payments once we have that locked in. You or someone else can help me with that...does not matter to me.
hahaha!!! I love this!
@@ErinTalksMoney Right?...and then this is the real sweet spot. Ultimately they are in the finance business...not the car business. Walk with them down the "I am going to absolutely going to finance this now that I know the rock bottom cash price and that number is in writing" road, at the last minute...IE while meeting with The Sales Manager or The Finance Manager...you say "Huh...I really appreciate the efforts, but on second thought, Ill just pay for the thing in cash. Today."
Jaws drop. Everyone is pissed...except you and the great deal you've just walked away with.
Talk about health care. I grew up with bad health care and health problems. It caused marital problems in the family. Now I have great health care.
I can imagine that you stirred up some controversy with the "house net worth" issue. To me, net worth is how big your pile of cash at your feet could be if you liquidated today. Certainly your homes value would be included in that (value - loan amount remaining). Calculating net worth gets fuzzy to me with 401K. I feel like your 401K should be multiplied by 0.7 to be accurate (unless it's in Roth).
And subtract another 7% from the value of the home .
This is an approx of what it you will pay in closing plus moving cost to sell home
@@sergiosantana4658 Agreed. One would have to be conservative when calculating home value. Net worth is a mushy number anyway. I think that people want to assess financial health based on net worth and those certainly require different criteria.
Excellently said!
I love your common sense approach.
I do count the house but don’t like to include the car when looking at net worth. A few months back you did a video where you explained how to look up stock/index funds etc and how to read the information about that stock (ie: the cost of the stock, the expense of the stock, etc). Would you be able to send me or post the link to that video? I thought I had saved the video but I can’t seem to find it now. Thanks in advance for your help. I would like to start investing on my own aside from my retirement accounts and trying to learn as much as I can.
Good discussion! On including home in net worth ... I don't do it, but I could see how people that are still in a giant family home and plan to significantly downsize might factor in the profit they'll make on that trade.
I'm still bitter that I received zero financial training in school.
I love Dave Ramsey but I make purchases with credit cards for thr bonus rewards. I've never paid a penny in interest. Also, I purchase investment properties with debt. It's not always easy but I have the mentality to handle it.
Dave gives great advice for the masses.
I'll discuss finances and investing with people, however I'm a little hesitant to discuss how much I make at my job.
Totally fair! And there is SO MUCH that you can discuss outside of income!
My house is 7% of my net worth and is two times my annual living expenses. I always tried to live within my means and remain frugal. I like your approach as it is down to earth and practical.
Well it sounds like you are sitting in a very good place! 😊
I am fortunate to have good timing and consistent savings, with a work ethic that helped. Good health and a successful career have helped me also. I hope my two sons gain some inspiration to achieve some success of their own as they are both in college now. My beautiful wife keeps me grounded and focused even as things have been challenging for us all in the last two years.
I include my primary residence in my net worth number only because it makes it a lot larger and makes me feel more successful.... nice video Erin, as usual!!
😂 I love it!!
I love your videos! Please make reviews on ARKK, TSLA, and AAPL. Thank you!!!
I track my net worth with and without house value. The one without is the one I am more tracking for retirement purposes. Same reason you gave, it doesn't provide income readily.
With house value = Net worth
Without house value = Portfolio
@@thegrimmperspective thanks for that.
'Love of money is the root of all evil.' More like ignorance around money is the root of all evil.
Great video. I try to talk to my kids about investing. Trust me, others are talking to them but in a negative way. Other people always encouraging an upgrade on phones and cars. Then asking for money and pretending good finances are 🍀 luck.
Great video!
Great video again, thank you!
Glad you enjoyed it!
We need to talk about COMPOUNDING MORE!!!
(And That’s money!)
We need to get to where more people know about it and very few do not!
We (Wife and I) have Rental Houses and love them!
All true... but I don't want other people knowing my worth because it changes their view of me, and potentially how they treat me. There can be resentment that doesn't belong in a friendship. Also agree that primary home should not be seen as part of your "portfolio."
totally fair - you keep that info to yourself! 😊
well, people like me watching youtube resent you regardless🤣
I miss the bloopers!
I think in your late 20's, 30's, 40's, and 50's it's better to have more income streams vs. Having a fat lump sum of cash. Those are the years you need to manage your fixed expenses until you get to your retirement age. I am 40 years old and I am looking for ways now to add income streams as I have paid off my house and own 1 rental property. Paying off my house was the right move because it is my forever home worth nearly 2x as much before the capital gains tax. However, I now realize that I need to have a 2nd income source that lasts into my retirement years. At that age, I hope I won't need the lump sum of cash to live off of.
When you consider the imputed rent of your primary home you absolutely should consider your primary home as part as your net worth.
This applies wether your home is mortgage free or not.
Keep in mind if you have a fixed interest rate your payment will remain fixed and take up a lower percentage of your income as your wages increase.
Once your home is paid for you can create an income stream from it through the use of a reverse mortgage.
The way I see it if you compare a 400k home to a 1 million dollar portfolio the 400k the 400k home will provide more value A
Example
A reverse mortgage on the 400k home will provide approx 12k annually of tax free cash
And a million dollar portfolio will provide you with just enough money to keep a roof over your head.
In this example the person with the 400k net worth will have 12k more of disposable income than the person with the million dollar portfolio.
why would you want to lose money on a reverse mortgage?
@@hanwagu9967 in the example above the reverse mortgage is creating a cash flow of 12 k annually for life.
How is this losing money?
@@sergiosantana4658 cash flow is a marketing term used by mortgage lenders to steal money from elderly people. It's not cash flow, it's a loan. You are literally losing money. Because it is a loan so you are paying interest and the loan amount you get will also not adjust to inflation. Your math is also completely off. I don't know how you are calculating $12k annually based on a $400k home, because you will never get a reverse mortgage loan that is anywhere close to 100% of home equity. You will get a loan based on 40-60% of home equity. Since 62yo is magic age for reverse mortgage start you will get the lower end. if fixed rate, you would only get have max $87k at current 4.5% fixed rate. Using your 33yrs life expectancy that gives you a whopping $2,636/year in supposed "cash flow". Considering the average term of a reverse mortgage is 7years, that's a whopping $18,452 total "Cash flow" over 7 years, for a reverse mortgage that cost you $100k in fees, costs, and interest. Remember, reverse mortgage is amortized the same as regular mortgages in that payments against equity is heavily toward interest initially. Even if you did a variable rate, that would give you $160k and change in net value plus line of credit a whopping $4,903/year or $34,321 over 7 years. So, tell me again how a reverse mortgage creates "cash flow" and isn't losing money?
@@hanwagu9967 You are right my 12k for life in the 400k home is wrong .
Today's higher interest rates have reduced the lifetime income for a 62 year old with a 400k home to approx $9500 annually.
Over a 30 retirement that's $285k more of cash flow that the homeowner with the reverse mortgage will have over the renter with the million dollar portfolio.
Keep in mind that a the homeowner is not making any P@I payment throughout there retirement and is using the $9500 to support other expenses.
In both cases the homeowner and the renter have secured a roof over their head the only difference is that the reverse mortgage supported the homeowner $285k more of cash flow over a 30year retirement.
This is an option that the renter does not have.
This is why I will stand by my original post that the reverse mortgage will increase your cash flow and going back to the topic of Erin's video I do believe that not including your home as part of your net worth is a mistake (especially for retirees)
You can call it a loan but it's a loan that has been paid forward from the collateral of the home.
5:13 Right tool for the task at hand...
But about the Jones. Lol. Great video.
I agree with you that personal finance is personal and therefore my opinion on how you calculate net worth doesn't matter. I also understand the logic you give behind excluding the primary residence from somebody's net worth calculation, because the 3 scenarios you laid out all are people with a 1M net worth but having very different income streams. However, the logic you laid out only really applies to people of means with multiple assets, and it sort of breaks down when you consider the inverse scenario.
Take three different individuals, none of whom own any assets outside of their primary residence. Person A is a renter and does not own a home at all. Person B owns a home worth 500K but has a mortgage of 200K. Person C owns a home worth 500K outright. If you exclude the primary residence from the net worth calculation then all 3 individuals have a net worth of 0. However, if you asked any of the people if they'd want to switch places with another person, you'd see an obvious asymmetry where Person A would rather trade places with B or C, Person B would rather trade places with person C, and person C would not want to trade places at all. If they all have an equal net worth then why would there be any asymmetry, they should be functionally equivalent and happy to trade places with one another.
There are certainly an endless number of scenarios - both real and hypothetical that you can use to argue both sides. You do what works best for you! 😊
well, what would they have thought in 2008?
@@hanwagu9967 Person A would still want to swap with person C since they have 100% equity in a house that still has value, and likely still with perosn B depending on the mortgage vs. value of the house. Are you under the impression house values went to 0 in 2008?
@@keenanmorrison home equity and value is only meaningful if you can tap into it by selling or loan. So again, tell me how that went in 2008 and the aftermath?
I go over my net worth usually a couple times per month, and I add my house debt and house value last because I really don’t want to sell my house! I live here!
That way, I get two numbers: without my house and with my house. It’s a much prettier number with my house!
Thanks so much!! 🙏😊
Calculate your net worth separate of your portfolio. Your net worth can show your financial progress, I suggest using purchase price of your home minus mortgage. Separately there is your portfolio, these are the assets you plan to use for your retirement. As is life, things change and perhaps you need to sell your home and rent. And maybe doing so prevents you from having to go back to the workforce??
@@thegrimmperspective thank you, I’m 25, and I haven’t left the workforce yet! You’d probably know my name if I had-I’d probably have invented something everyone uses if I had left the workforce!
By the way, I’m reserving the name “smoot smacker” for something I invent.
So much good info here, I very much liked the comment Net Worth not equal to Self-Worth, such a great statement. Often many get confused about importance of Net Worth… In the big scheme Net Worth well outweighed by Self Worth. Many of us, independent of wealth, have great contributions to making a better world and this should be championed.
Absolutely!!
net worth and self-worth have become inextricably entwined, thanks to all those ego lists.
Here's some financial advice, separate your net worth from your portfolio. Know that $1 million in your brokerage, IRA or 401K account doesn't have the value of $1 million in a ROTH. Learn to keep more of your money by preventing the amount of taxes paid in retirement. Whether that be with the assistance of Roth conversions to reduce RMDs and/or deciding when to take social security. There is a lot more to it than simply knowing your NET WORTH and determining when to retire.
So for the sake of knowing your general, financial well-being; include your home's purchase price as an asset and include the mortgage as a liability. So if you don't have software to differentiate or if you don't want to have two spreadsheets, simply have your "portfolio" as a subtotal within your Net Worth Statement.
well, it's not as generic and black and white as Roth vs brokerage, IRA or 401k. First, I presume IRA and 401k you mean traditional IRA and 401k since you can have Roth versions of both. second, you ignore tax efficiencies from brokerage accounts. third, not every situation makes roth conversion beneficial.
Thank you for the informative content, Erin. Do you also omit your mortgage from your liabilities part of the net worth calculation? 🏡
I still include it as part of my liabilities 😊
These are good ones. I hope you reconsider your plan to live by the 4% rule which means you plan to sell shares to pay the bills…from someone that has took early retirement i can speak from experience that living off dividends and income strategies is the best strategy/approach in retirement. 😊
In fact, check out GenExDividendInvestor youtube channel that literally just did a video on why dividends are better than selling shares.
Whenever the word strategy(ies) enters the room, people ought to simply ignore or proceed with utmost caution. If you know about dividends you wouldn't continue to spew the old live off of dividends trope. I think anything that has a % rule is quite backwards. You need to determine how much you want or need to live off of in retirement and then figure out what % that comes out to with the amount you expect to have saved by retirement.
@@hanwagu9967 I’m very passionate about dividend investing and covered call income. I do education and training on the topic and I show people the benefits of passive dividend investing rather then following the advice to sell shares via the 4% rule. If you don’t agree, that’s fine. It has worked for me.
@@richardthorne2804 passive investing is a bit of an oxymoron, especially as it pertains to trying to live off of dividends. You simply cannot say dividend investing is better than 4th rule, especially if you take taxes into the consideration depending on your tax jurisdiction.
@@hanwagu9967 I most certainly can because I’m doing it. Pepsi and HD paid me a 10% dividend increase this past week. I also sell covered calls to double my dividend amount. Have you ever heard of sequence of return risk? If you retired in Dec 1999 tell me how selling shares worked out for you during the next 10 years?? Lost decades are not uncommon. If you are seriously interested check out GexExDividend investor you tube channel.
One’s net worth calculation is less important than what they do with that information. Although I calculate & record my net worth once a year, it hasn’t changed my strategy. It’s of interest retrospectively but not particularly practical.
Erin, we have several rentals. Been real estate investing for 20 years. Hit us up for a little advise...no charge.
*Advice
I understand using or not using a primary residence in the net worth calculation. I use it because I leverage my home. This was best applied when I was able to do a cash out refinance on my home which resulted in shaving $50 off of my monthly payment and reducing the loan length by 4 years. I used the money I pulled out to purchase a rental property. This was very situational and not everyone would get such a great deal, so I get not adding it to the net worth calculation. For instance, the primary residence isn't used in the calculation to qualify as an accredited investor.
Personally, I see a house as a piggy bank that may be used to further someone's financial journey and therefore should be accounted for. At the end of the day, I think net worth should be used as a guide to help us build financial freedom as opposed to a "must meet" number. As a guide it can help us make decisions that have a positive impact on meeting our goals, and is only one factor on if someone if financially free.
Thank you for a great video! :D
I personally think it's a mistake to not include a house in net worth (or "net wealth" as I call it) for purely definitional reasons. The definition of net wealth necessarily includes a house (and mortgage) if applicable. For people who don't want to take into account their house for their practical financial situation, which is perfectly reasonable, I think just using a different metric is appropriate. Something like "net financial assets" or "net liquid wealth" or something along those lines.
Net wealth as a technical term officially does include a primary residence, and I think it's a disservice to financial conversations when people just put their own definitions on the same terms. It's confusing and unclear. So if there's a bunch of people who want to talk about and keep track of a value that is equivalent to [net wealth - primary residence], maybe we need to define a new consistent term that refers to that precise formula. Kinda like how APR and APY are two different formulas for similar concepts.
or just don't get caught up in the net worth nonsense. Net worth is not a technical term. Book value may be a technical term. The reason net worth has become this controversial thing, is because for personal finances it is utterly meaningless except as a benchmark to compare egos against egos. Net worth is so squishy, you can include things like the valuation of intellectual property. personal finance people talk about that all the time in terms of the value of your time to do x over y. So, if you believe you are good ideas are worth $1bn, then that is considered an asset and should also be included in net worth. There is a nonsensicalness trying to apply terms used for business in personal finances, which net worth does. APR and APY are not similar concepts and isn't a good comparison. People just need to stop with the net worth thing and just focus on their financial goals and what it will take to achieve them. Now if your financial goal is to say and post your net worth is $$, then obviously knock yourself chasing the meaningless.
Your response seems unnecessarily oppositional. I'm not arguing for the use of or concerning oneself with net wealth. I'm simply responding to Erin's point in the video about including (or not) a primary residence in that figure. If you don't like the metric, then don't use it, but for those who do choose to use it, it only makes sense to use a consistent formula so the same term means the same thing to everyone.
@@damontolhurst net worth is indeed nonsense. As noted, for personal finances it is a useless metric, because what does it actually do for you? For businesses, book value does have meaning and is necessary for business finances, etc. I'm a hand model and my hands are insured for $5m, so that should also be included into net worth by the "technical term" metric for net worth. You can get wrapped up around a useless metric in personal finances if you want. I get it, people like to give themselves a warm fuzzy. Ultimately, though, it's just another metric used by people to lie to themselves. Of course if you are uber wealthy and do have assets and are living off of favorable asset loans, then book value is necessary for those limited uber wealthy individuals.
If one uses the net worth calculation you are using, not adding the equity in your home and only calculate net worth on assets/investments that can or will provide you income. How would you equate someone’s net worth then, who is or will be receiving a large monthly Cola adjusted pension as well as having stock, bond, investment properties and cash? And if one has their home paid off, how would you calculate the lack of mortgage payments as part of your net worth being that our investments will not need to supple that additional income needed to keep paying for the home?
Just seems like net worth should be determined as it is defined and understood by the financial industry and corporations. “Net worth is the value of the assets a person or corporation owns, minus the liabilities they owe.”
I also don’t count my primary residence in my net worth even though it’s totally paid off. I do count it as an asset but I see it as something i need to live in so it’s illiquid, even If I sold it I’d still need somewhere to live which would result in some level of cost. I don’t really count anything else I own outright such as cars, possessions in my net worth. The only things I count are stocks, savings and pensions. I know technically anything you own is part of your net worth but I don’t see knowing this as helpful as the other items like a house, car, possessions don’t generate any income, indeed most are a fiscal drag. Keep up the videos, they are great.
I use the same line of thinking!
That's the difference of your net worth and tracking the general health of your finances as compared to your portfolio (stocks, savings, pensions, etc).
Similarly, I never count cars and depreciating objects toward my net worth.
If I listen to advice and then decide for myself, who do I blame if things don’t go as well?
haha - well for me - I have an internal locus of control
well, we have millions of people out there waiting for student loan forgiveness...just to list one example.
Spot on. 💯
Thanks for watching!
I love Dave Ramsey, but I disagree that his baby steps work for everyone, especially those with huge student loan debt. If you follow his plan, you'll be stuck in babystep 2 way too long, paying off loans with only a $1K emergency fund and miss out on your crucial early years of investing and compounding. I would never stop contributing to a 401K (or Roth), especially if there is a free match.
8:58 Unless it's Jim Cramer, then just do the opposite of what he recommends 😂
1:02 It's almost like you named your channel for a greater reason clicks and likes...
Consider yourself lucky if you have a spouse to discuss and plan your finances - single guys are at a disadvantage here, but it's always nice to have TH-cam videos and podcasts to help you in the right direction. Thanks Erin!
This is inherently false and there is loads of data online that will prove men are far more ahead when it comes to finances than women. Please get your facts right before making false claims online for all to see.