I realize the title of this thread is millionaires, but I don't consider myself one - because most of my savings is tied up in tax-deferred retirement accounts. I certainly don't live or spend like a millionaire, and I have to keep working (at least for the next 10 years or so).

I prefer to say that I have over $1MM in savings (that will hopefully allow me to retire reasonably early and comfortably).

It a subtle difference that means something to me.

That just made me realize - if I died today, my son would be a millionaire. Funny how that works.

62strat said:

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Churlish Sambino said:

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But I think the biggest key it is that my wife and I have been married the whole time, and neither of us are big spenders. We drive Fords,

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you say that as if there aren't ford trucks with stickers in the 6 figure neighborhood.

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The key is it sounds like they drive them into the ground rather than buy new ones every few years. Talk about a way to throw away money.

The other thing I loved about the great post was the comment about staying married. First, divorce is a killer financially and second, I think having a stable home is great for financial security as long as you both agree that saving for the future is important. I wasted a lot more money when I was single.

Caliber said:

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Net worth absolutely includes your home but that doesn't mean it should factor into your calculations for retirement or financial independence without a specific plan.

Yes, you have to live somewhere, but your home is definitely an asset if you compare a homeowner vs a renter.
If two people have a 'liquid' net worth of $800k but one is a renter and the other owns a $750k house (no mortgage), would you really say they actually have the same net worth?

They both have ongoing living costs with rent vs property tax, maintenance, etc, but the homeowners asset certainly brings a value to the table that the renter does not have, all other things being equal. They both have to live somewhere, but the homeowner has an asset that could be turned into cash while becoming a renter.

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I'm not advocating this as smart but if you got into dire straits you can tap into the equity of your home as a last resort. Renters don't have that option.

Problem is too many people voluntarily get themselves into dire straits and then have to pull that trigger.

Regardless, that's an "advantage".

YouBet said:

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Caliber said:

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Net worth absolutely includes your home but that doesn't mean it should factor into your calculations for retirement or financial independence without a specific plan.

Yes, you have to live somewhere, but your home is definitely an asset if you compare a homeowner vs a renter.
If two people have a 'liquid' net worth of $800k but one is a renter and the other owns a $750k house (no mortgage), would you really say they actually have the same net worth?

They both have ongoing living costs with rent vs property tax, maintenance, etc, but the homeowners asset certainly brings a value to the table that the renter does not have, all other things being equal. They both have to live somewhere, but the homeowner has an asset that could be turned into cash while becoming a renter.

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I'm not advocating this as smart but if you got into dire straits you can tap into the equity of your home as a last resort. Renters don't have that option.

Problem is too many people voluntarily get themselves into dire straits and then have to pull that trigger.

Regardless, that's an "advantage".

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If you are having to tap into the equity of your home in an emergency, I would think it is safe to assume you aren't a millionaire.

YouBet said:

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Caliber said:

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Net worth absolutely includes your home but that doesn't mean it should factor into your calculations for retirement or financial independence without a specific plan.

Yes, you have to live somewhere, but your home is definitely an asset if you compare a homeowner vs a renter.
If two people have a 'liquid' net worth of $800k but one is a renter and the other owns a $750k house (no mortgage), would you really say they actually have the same net worth?

They both have ongoing living costs with rent vs property tax, maintenance, etc, but the homeowners asset certainly brings a value to the table that the renter does not have, all other things being equal. They both have to live somewhere, but the homeowner has an asset that could be turned into cash while becoming a renter.

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I'm not advocating this as smart but if you got into dire straits you can tap into the equity of your home as a last resort. Renters don't have that option.

Problem is too many people voluntarily get themselves into dire straits and then have to pull that trigger.

Regardless, that's an "advantage".

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even without this, at some point, you get old, and you downsize. So you sell and realize the worth of your home.

My parents are doing that as we speak (early 70s). Rough numbers, after selling their current home and buying (relocating to another state), they will pocket $600k, and use remaining $700k to buy cash. Then, they could possibly do it again for a future downsize, or if they end up in the old folks home and liquidate all the equity. The $700k in home value today could be $1m+ in just 6-7 years.

I include the equity of my primary residence in my net worth and capital allocation calculations because we are stewards of all of our wealth, not just some of it. Some examples I see or hear of on a daily basis, where you would be a fool not to consider or utilize your home's equity:

Scenario 1:
You own 100 year old home that is falling apart in a post-gentrification neighborhood. Great location, but you live in squalor and will for the rest of your life (until your children or grandchildren sell after you die). But there is an alternative. You could sell today for lot value (let's say $500-600,000), move to a nice suburb, buy a McMansion with all cash, live in a nice neighborhood with nice schools for your family to attend, and generally have a better life. Better to not consider your equity and keep living in squalor?

Scenario 2:
You have $100,000 worth of credit card debt that is racking up at 30% interest that you cannot realistically pay off any time soon. But a HELOC would allow you to temporarily take some equity out of your home at ~7%, which means you can get out of credit card debt and reasonably quickly get the HELOC paid off also. Better to keep the high interest credit card debt?

Scenario 3:
You get a once in a lifetime business opportunity that will make you something like a 50% annual return. You are cash strapped at the time, but your home is paid off. Again, you can get a HELOC at 7% interest that will allow you to invest in this new venture and pay off the HELOC in just 2.25 years. Are you going to pass that up? (I returned capital and gains to syndication investors last year with 33% and 100% IRR's, respectively, so yes, this does happen).

MAS444 said:

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Net worth by definition includes all assets and liabilities. If you want to exclude certain assets from the calculation for whatever reason that's fine, but it's not true net worth.

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This is essentially the right answer. However, I will complicate it a bit, just for fun. From a purist perspective, I'd throw these in to your net worth equation:

• Mark everything to market: Basically, use liquidation value for all assets and liabilities. For instance, 401(k) balances could be reduced for penalties and tax-effected. Home equity should be haircut for selling expenses such as commission and fees. Vehicles and other property should be valued at true net cash proceeds, so remove selling expenses and adjust to true market value (no, your expensive bed and mattress aren't still worth the $10,000 you paid for them).
• Some purists would include discounted future cash flows, but I generally reject this notion. Pension payments, social security, and other contingent value only happens if you're alive to receive them when you're eligible. So at the least, you'd need a mortality factor adjustment. If you have the ability to do a cash-out of your pension, then you can tax-effect that value and include it.
• Believe it or not, some people include their future inheritance in their net worth (and some are desperately counting on this for retirement funding). Many events can happen between now and that point. This falls into the "contingent" category as well, for me, and should be excluded.
• As some have noted, income items are generally irrelevant to this concept. Net worth is a balance sheet - your net income for a given period increases or decreases the next update of your net worth. Retirement planning is a whole different topic, as well (and it is heavily influenced by cash flows instead of static asset value).

Good discussion topic - net worth is both a really easy and really difficult concept to grasp.

i leave home equity out personally. no plans to downgrade or borrow against it any time soon.

62strat said:

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Kansas Kid said:

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YouBet said:

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Caliber said:

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Net worth absolutely includes your home but that doesn't mean it should factor into your calculations for retirement or financial independence without a specific plan.

Yes, you have to live somewhere, but your home is definitely an asset if you compare a homeowner vs a renter.
If two people have a 'liquid' net worth of $800k but one is a renter and the other owns a $750k house (no mortgage), would you really say they actually have the same net worth?

They both have ongoing living costs with rent vs property tax, maintenance, etc, but the homeowners asset certainly brings a value to the table that the renter does not have, all other things being equal. They both have to live somewhere, but the homeowner has an asset that could be turned into cash while becoming a renter.

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I'm not advocating this as smart but if you got into dire straits you can tap into the equity of your home as a last resort. Renters don't have that option.

Problem is too many people voluntarily get themselves into dire straits and then have to pull that trigger.

Regardless, that's an "advantage".

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If you are having to tap into the equity of your home in an emergency, I would think it is safe to assume you aren't a millionaire.

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Why would you tap into 401k with penalties and high tax cut vs take out an equity loan at a reasonable %??
very few people on this thread have a million in cash in savings account or brokerage.

The term has nothing to do with how you live, or your cash flow, or income, or anything you are inferring. The term by definition is assets minus liabilities, plain and simple.

A man that buys a $500k home, and 10 years later it's worth $1.4m while owing $400k is a millionaire. (assuming nothing else)

He could sell it, put $1m in his bank, and rent. But that isn't required in order to be labeled the term.

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I was referring to liquid net worth which I didn't make clear in my post. For total net worth, I concur with including your house equity.

Kansas Kid said:

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YouBet said:

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Caliber said:

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Net worth absolutely includes your home but that doesn't mean it should factor into your calculations for retirement or financial independence without a specific plan.

Yes, you have to live somewhere, but your home is definitely an asset if you compare a homeowner vs a renter.
If two people have a 'liquid' net worth of $800k but one is a renter and the other owns a $750k house (no mortgage), would you really say they actually have the same net worth?

They both have ongoing living costs with rent vs property tax, maintenance, etc, but the homeowners asset certainly brings a value to the table that the renter does not have, all other things being equal. They both have to live somewhere, but the homeowner has an asset that could be turned into cash while becoming a renter.

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I'm not advocating this as smart but if you got into dire straits you can tap into the equity of your home as a last resort. Renters don't have that option.

Problem is too many people voluntarily get themselves into dire straits and then have to pull that trigger.

Regardless, that's an "advantage".

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If you are having to tap into the equity of your home in an emergency, I would think it is safe to assume you aren't a millionaire.

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Yes, I was just pointing out an advantage of owning vs renting.

62strat said:

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YouBet said:

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Caliber said:

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Net worth absolutely includes your home but that doesn't mean it should factor into your calculations for retirement or financial independence without a specific plan.

Yes, you have to live somewhere, but your home is definitely an asset if you compare a homeowner vs a renter.
If two people have a 'liquid' net worth of $800k but one is a renter and the other owns a $750k house (no mortgage), would you really say they actually have the same net worth?

They both have ongoing living costs with rent vs property tax, maintenance, etc, but the homeowners asset certainly brings a value to the table that the renter does not have, all other things being equal. They both have to live somewhere, but the homeowner has an asset that could be turned into cash while becoming a renter.

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I'm not advocating this as smart but if you got into dire straits you can tap into the equity of your home as a last resort. Renters don't have that option.

Problem is too many people voluntarily get themselves into dire straits and then have to pull that trigger.

Regardless, that's an "advantage".

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even without this, at some point, you get old, and you downsize. So you sell and realize the worth of your home.

My parents are doing that as we speak (early 70s). Rough numbers, after selling their current home and buying (relocating to another state), they will pocket $600k, and use remaining $700k to buy cash. Then, they could possibly do it again for a future downsize, or if they end up in the old folks home and liquidate all the equity. The $700k in home value today could be $1m+ in just 6-7 years.

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As are mine. House is paid for. Expecting to get around $700k for it and downsizing to a $250k home. They are 80 so that net cash is huge.

I bleed maroon said:

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• Mark everything to market: Basically, use liquidation value for all assets and liabilities. For instance, 401(k) balances could be reduced for penalties and tax-effected. Home equity should be haircut for selling expenses such as commission and fees. Vehicles and other property should be valued at true net cash proceeds, so remove selling expenses and adjust to true market value (no, your expensive bed and mattress aren't still worth the $10,000 you paid for them).

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Our FA does this with our balance sheet. I do not do this in my own spreadsheets simply because I haven't baked it in yet. Thus, his Net Worth number for us is lower than I show and is a truer number than mine.

I should say I haven't baked it in for investments; I have it accounted for with hard assets.

there's a similar thread on another board in which there's also abundant debate over including home equity into net worth, yet it's commonly default to assume combined assets between partners into millionaire consideration and consider them on the same level as solo millionaires


If a single person and a couple reach 7 figures at the same age, I'd consider the single person's accomplishment more than twice as impressive since the couple had the advantage of taxes, shared housing etc

EliteZags said:

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there's a similar thread on another board in which there's also abundant debate over including home equity into net worth, yet it's commonly default to assume combined assets between partners into millionaire consideration and consider them on the same level as solo millionaires


If a single person and a couple reach 7 figures at the same age, I'd consider the single person's accomplish more than twice as impressive since the couple had the advantage of taxes, shared housing etc

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a single person controlling spending is a lot easier than a household. I would find the couple more impressive in most cases. Assuming not double income high earners no kids.

Ragoo said:

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EliteZags said:

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there's a similar thread on another board in which there's also abundant debate over including home equity into net worth, yet it's commonly default to assume combined assets between partners into millionaire consideration and consider them on the same level as solo millionaires


If a single person and a couple reach 7 figures at the same age, I'd consider the single person's accomplish more than twice as impressive since the couple had the advantage of taxes, shared housing etc

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a single person controlling spending is a lot easier than a household. I would find the couple more impressive in most cases. Assuming not double income high earners no kids.

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sounds like you're basing assumption of the typical female having negligible income and prior net worth

not saying that's inaccurate.. just it shouldn't be an even comparison of solo vs combined net worth

To those that argue equity doesn't count, are you deducting the dollar figure of the mortgage that exists from the non primary residence assets? Seems nutty to claim a person with a 500k mortgage on a 600k house is a millionaire because they have $1,000,000 in non-equity assets, but a person with a paid off $600,000 house and $800,000 in non-equity assets isn't.

Personally think you count everything and realize a millionaire isn't a real benchmark of wealth anymore.

hph6203 said:

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To those that argue equity doesn't count, are you deducting the dollar figure of the mortgage that exists from the non primary residence assets? Seems nutty to claim a person with a 500k mortgage on a 600k house is a millionaire because they have $1,000,000 in non-equity assets, but a person with a paid off $600,000 house and $800,000 in non-equity assets isn't.

Personally think you count everything and realize a millionaire isn't a real benchmark of wealth anymore.

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The other thing is being a millionaire in New York or LA isn't the same as being one in rural Texas. Purchasing power is what really matters not the number of zeroes on a spreadsheet. The two tend to be correlated but there is a difference.

True true. So in these modern times of big time inflation, when will we simply evolve the definition of millionaire to mean people who earn a million or more each year?

A client of mine once said he wanted $1 million. Once he got it, he wanted $2 million. Once he got $2MM, he wanted $3MM. At 68, he retired with $5MM and spends less than $100k a year.

He was chasing a number without a purpose and a plan.

That being said, $2MM is the new $1MM. .

aggiesundevil4 said:

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True true. So in these modern times of big time inflation, when will we simply evolve the definition of millionaire to mean people who earn a million or more each year?

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Even then it matters where you live. Near me, there are towns where you can buy a nice house for under $100k and other costs are dramatically cheaper than in urban areas. This is also why I hate the idea of a national minimum wage (ok I hate all minimum wages but national are worse). In NYC, $15/hr doesn't go far but in other places in the US, $30k/yr is a livable wage but good luck convincing people from the urban coastal areas of that fact.

aggiesundevil4 said:

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True true. So in these modern times of big time inflation, when will we simply evolve the definition of millionaire to mean people who earn a million or more each year?

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because that is worthless.

There are loads of wealthy people with $1 salaries.. their wealth is often tied up in stock. Like steve jobs. You saying he isn't a millionaire?

I'm very clear on my goal. I want $20k/mth passive income with my primary residence, kids school and an annual family travel fund setup.

That comes to roughly $10mm in investable assets and another $2MM so $12Mm all in.

I'm focused on cash flow vs number

Cyp0111 said:

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I'm very clear on my goal. I want $20k/mth passive income with my primary residence, kids school and an annual family travel fund setup.

That comes to roughly $10mm in investable assets and another $2MM so $12Mm all in.

I'm focused on cash flow vs number

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That is very conservative. That is assuming a 2.4% withdrawal rate in the investable assets. Most advisors would say you can do 4% per year. 3.5% if you are conservative.

Cyp0111 said:

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I'm very clear on my goal. I want $20k/mth passive income with my primary residence, kids school and an annual family travel fund setup.

That comes to roughly $10mm in investable assets and another $2MM so $12Mm all in.

I'm focused on cash flow vs number

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What are you gonna do with the rest of the money? That should yield you almost twice that amount, even invested conservatively.

Also, what career field are you in. If you're going to save $10 million, I'm going to have my kids do that.

The excess will fund continued private investments in real estate , will also prob donate more heavily to good causes.

I work in trading. I wouldn't advise it. I'm 39 and about 60% there but paid the price with healt. Working on that

Cyp0111 said:

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I'm very clear on my goal. I want $20k/mth passive income with my primary residence, kids school and an annual family travel fund setup.

That comes to roughly $10mm in investable assets and another $2MM so $12Mm all in.

I'm focused on cash flow vs number

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Retire in the South Pacific.

Your lifestyle choices are cheaper there.

Cyp0111 said:

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The excess will fund continued private investments in real estate , will also prob donate more heavily to good causes.

I work in trading. I wouldn't advise it. I'm 39 and about 60% there but paid the price with healt. Working on that

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My son wants to be an investment banker because he wants to be "mega rich". I prefer a better balance. Someone called it the "stress to money ratio". I've been pretty fortunate in many ways…the best of which was marrying a woman who was even more financially conservative than me.