Calculating Net Worth: Should Home Values Be Included?

For most of my adult life I have avoided calculating my net worth, mostly because the number at the bottom of the calculation was always red. The thought of owing more than I owned depressed me. Looking back, I wished I had tracked net worth to show the positive gains we made over the years.

Now that we are debt free, and that small, but ever-so-slowly growing number at the bottom of the net worth calculation is black, I am committed to calculating our net worth once a month and tracking it over time.

Assets Minus Liabilities

The basic definition of net worth reveals the number is essentially the difference of liabilities, or debts, subtracted from your assets. Seems simple enough. The problem is, there are many different classifications of assets.

In corporate finance, assets are generally classified by their liquidity. That is, how easily can they be converted to cash. Cash saved in a bank account is obviously the most liquid form of asset, while equipment might still be counted as an asset, but since it would have to be sold for a depreciated value to convert to cash, it is considered less liquid.

The same goes for most households. For example, our emergency fund is our most liquid asset. The two vehicles we own, and their estimated private sale value, could also be listed as an asset. However, knowing what a pain it can be to sell a car, I’m reluctant to include their value as part of our net worth.

And then there are houses. Assuming your home’s value wasn’t decimated in the recent housing market bubble, or you have been diligently making a mortgage payment for several years, chances are you have equity in your home. For example, if you own a home worth $200,000 and only owe $170,000, listing both the house and the mortgage as an asset and liability, respectively, would net increase your net worth by $30,000.

A more extreme example, after a couple decades of making a mortgage payment, might lead to a $100,000 bump in net worth. But to realize that money, you would have to sell your home, something you might be unwilling to do.

Calculating Two Net Worths

We simply calculate two net worth figures. The first, I call our “Total Net Worth,” is calculated by subtracting all of our liabilities (mortgage) from all of our assets (savings, house, etc.).

I then calculate a second net worth figure I call our “Liquid Net Worth.” This only includes assets that can be quickly converted to cash, or are already in cash form. This calculation would account for any stocks, bonds, CD ladders, and cash-based accounts such as our emergency fund, goal-oriented accounts at Smarty Pig, and various sinking funds, but would not include “hard assets” like cars and houses.

In most cases, this second net worth calculation is much lower, but is, in my opinion, a more realistic look at your current financial situation. Imagine someone $20,000 in credit card debt with negligible savings, but $35,000 in equity in their home. A $15,000 positive net worth presents a skewed view of their real financial shape. A more accurate, and sobering, liquid net worth calculation would show them nearly $20,000 in the red, and would hopefully motivate them to work on getting out of debt.

Ask the Reader: Do you currently track your net worth? What method do you use? Do you include all assets and liabilities, or some assets and all liabilities, or some other combination?


  1. I’m loath to include home equity in net worth. You’re right in the fact that it presents a skewed picture of financial stability.

    I’ve listened to my financially unprepared in-laws talk for years about how their retirement plan is their home. Come to find out the home is mortgaged to the hilt.

    Even if you have tons of equity, would you sell? Then where would you live?

    • Another thing I didn’t touch on in the post was the fact that calculating your home’s true value, short of hiring an appraiser, is tough to do. It’s mostly a wet finger in the air based on comparable sales in your neighborhood and what your gut feels you could get for your house. At least with car values there’s a fairly recognized standard such as the Kelly Blue Book value.

      • There are some pretty decent real estate websites out there, like, that give a ball park figure of what houses in your area are selling for. While it isn’t quite as good as a true appraisal, it should help give a sense of general market fluctuations.

        • Zillow only works though if there are enough home sales in your general area to provide data. It isn’t as helpful in towns as it is in cities.

  2. I have been tracking our net worth since Oct 2007 when we started the Dave Ramsey plan. I include the house, cars and jewelry in the bottom line net worth, but in when doing the calculation I have 3 categories under assets (1) Cash & Cash Equivalents (2) Retirement/Investments (3) Other. The other category is where the illiquid assets are at. So essentially I am calculating the same number as your “Liquid Net Worth”, it just a line item within my overall net worth calculation (spreadsheet). By the way, the only reason the jewelry is included as an asset is because there is an insurance policy that covers it, up to the value that I include in the calculation.

  3. We calculate total net worth to get the big picture view. We decided that we need to acknowledge everything; seeing total net worth has been a motivation for us.

    We know how much debt we’re in (student loans and a mortgage) and we’re working on paying it down. Paying off the car loan was a great feeling as our cars are simply small assets.

    Little by little are net worths are going up due to paying debts and increasing savings. I think the danger with total net worth is seeing it go up, but it’s only due to house value. When you calculate you have to analyze and acknowledge why your net worth has changed.

    Great topic; I’m interested to see how others do it!

  4. I only count our investments and savings in our net worth. I do it monthly in a composition book- now there is a teacher!
    Property value is difficult to judge in this market (we aren’t listed on Zillow). Cars/boat are a part of every day life. Jewelry? :>) LRGCHE – unless it is stolen you cannot get anywhere near what you paid (ask my son who sold the engagement ring for $2000 to the same guy he paid $5000 for it six months before). Art? it is very market dependent. Sooo- that leaves the cash.
    If you want to feel really good about yourself- go for it all. I think, realistically, the cash is the bottom line.
    After reading this I now understand how people on are so “rich”

    • I totally understand what you are saying about the Jewelry, the insurance covered is for stolen, lost, damaged etc. and it’s for true replacement value, but you’re right if I needed cash it wouldn’t be anywhere near the same amount. But that kind of thinking is applicable for your emergency fund and other liquid assets.

      The big question proposed here by Frugal Dad, is do you include illiquid assets in your net worth calculation or not?

      Question Janette, if you only count investments and savings in your assets, do you count your mortgage as a liability?

  5. Ironically, I do the same thing as you Frugal Dad. I have two different numbers, one with the house and one without. I do not include cars or any ‘solid’ asset in either number because I know I will always need 2 cars, and I would not sell my furniture or anything for cash. The amount I own in jewelry is negligible, so no need to include that.

  6. I have been including the house in my calculation (but not the insured jewelry). I think I’ll start a liquid calculation as well. Curious, do you count retirement accounts, 401(k)s and IRAs, as liquid? I don’t think of them as liquid because of the early withdrawal penalties.

    • That’s a good question, and something I struggle with myself. You could get very specific/technical and say that things like Roth IRA contributions (and I emphasize only the contributions) may be withdrawn any time, and could be considered liquid. However, earnings inside the Roth IRA, and other tax-advantaged accounts like 401ks, etc. would be less liquid considering you’d have to pay a steep penalty.

      I personally include all “retirement savings” balances in my “liquid net worth” calculation, with the understanding that a portion of that money would be less penalties if cashed out prematurely.

  7. I also track it both ways, one with our home value and mortgage included, and one with both of those taken out. The reason I used is that I figured the ‘non-home’ stuff is more in control for us where the home stuff is largely at the mercy of the market due to the decline in values. We were seeing our net worth decline month to month and it wasn’t painting a true picture that we were saving more and paying down debt. I didn’t eliminate it altogether because I think knowing where you stand overall is a necessary thing, but being realistic as to the importance and weight was important as well so that we could see our financial picture in a more true sense.

  8. Same as you, I do both. I usually count only my liquid assets as my “real” net worth, but when that number gets too depressing (after I read yet another story about how I need to have at least 8 trillion dollars saved for retirement so I don’t wind up eating cat food), then I factor in my mortgage-free Manhattan co-op and my classic 1966 Mustang fastback, which regularly appreciates in value, at which point I feel a little better. Whew!

  9. I calculate my net worth both with and without the house and its mortgage. I also calculate my retirement plans net of taxes (except for the Roth). My tax bracket in retirement is a guess at best, but at least it gives me a clearer picture of how much net of taxes I would have for retirement.

  10. Good point. I only include things that I’d not need until I die. I will always need a roof over my head and the region I’m in has no public transit so a car or other set of wheels I don’t include in the value of my estate since I will just about always need them ( at least another 50 years).

  11. I have 3 lines on my graph – Cash, Retirement & Net Worth. I don’t count equity in the house as Asset, but I do count mortgage as liability. Two fold reason for doing that – one, we want to pay off the mortgage as soon as possible, so the “red” figure on the Net Worth line motivates us to pay it off quickly. Second, after listening to the stories how people used their houses as ATMs during housing bubble, we don’t want to get caught in falsely feeling “house rich, cash poor”.

  12. I include my home value in my net worth, because the number is not accurate otherwise.

    IMO, the reason why including it will skew your sense of financial stability is because of a misinterpreted meaning of what net worth tells you.

    For most people, it’s probably a good idea to include your “other” net worth figure, the liquid assets number. But that should be called “liquid assets”, not net worth.

  13. I calculate both too, but I call mine 2 versions:
    Net Worth: House and financial assets
    Financial Net Worth: (Net Worth minus the house) Just cash, bonds, stocks, mutual funds, etfs, and other such financial investments… Ironically I don’t include old coins in this number, but perhaps I should… I’m just too lazy to check the current value of my old coins. Plus selling them would be a hassle. Besides, my old coins are going to my kids anyway. In fact, I believe any treasure that’s to be passed to the kids shouldn’t be included in the net worth calc (except the house ;))

  14. I calculate and post our net worth updates at BFS every month. I include the house since the mortgage is sobering and we have no other debts anymore.

    Our assets include cash, stocks, retirement accounts, our house, and our cars (since I can sell cars on Craigslist for Kelley Blue Book value in less than a week – I’ve done it 3 times now). Our liabilities only include the mortgage.

    If anyone ever wants to just know our cash net worth, they can work the numbers as needed. 🙂

    • I just read your July net worth update…congratulations on making that last car payment! I know that felt good!

      I like the way you’ve separate retirement from cash and stocks (in taxable accounts, I assume). I will probably adopt something similar to group assets.

  15. I don’t track net worth right now. However, if I did own a home, I would include it in the calculations.

  16. I started doing a monthly calculation of our net worth this year. While it isn’t great, We aren’t in the red, which came as both a surprise and a relief.

    I include both our automobiles and our house in our net worth. We’ve been working hard to pay off our second mortgage and bring our home up from under water. We are doing this so that we could move without a short sale or bankruptcy if need be.

    Fact is, if push came to shove and we needed to sell a car or even our house, I’d be willing to do that. Because I am willing to liquidate these assets if the need arises, I include them in our net worth. My husband has declared he’d go hungry before letting me sell my engagement ring, so that stays off the calculation.

  17. I include the mortgage as debt, but ignore the home value. So, aside from taxes owed, the net worth in my head is what I’d have after paying the mortgage in full. You can’t spend your house. When we downsize, it would be great if we find we pocket some money from the house sale and new purchase, but I’d not count on it.
    There are some who will retire to the vacation home they already own. They may want to include the house as it’s an asset that will turn to cash, but I’ll ignore it for now.

  18. I calculate both “Total” and “Cash & Cash Equivalent Only” networths just like you. Luckily in my case I never had any kind of debts other than my mortgage and the last mortage payment was a month back!!. Being in a place (India) where the house prices have been shooting up yearly for the last 10 years or so also helped in keeping my “Total Networth” in black for some time now.

  19. I don’t usually include my home in net worth (nor the mortgage in liabilities) with my usual calculations. Once a quarter I do take a look at it with home included, but I usually believe that equity is a false indicator, so I typically include future interest on my mortgage in with my equity.

  20. We use to do our calculating, and it does include the house as part of our net worth. We only include a very conservative estimate of it’s value. (We live in Arizona and have seen so many people disillusioned by what their house is worth.) We include our cars and jewelry too, but at a fraction of the cost. They are all high value items, paid off, and we could get something for them within a few days if necessary.

  21. My husband and I just bought our first house last month, and I wasn’t sure how I wanted to handle the mortgage and home value in my financial tracking. Thanks for the great idea to calculate both total and liquid net worth in my spreadsheet net worth calculation. I still have to figure out whether I want to include the mortgage in my Quicken account.

  22. If you are included the home’s equity in your calculation then you also have to deduct the cost to sell. Reduce your equity by at least 6% of total value of the home to pay Realtors fees.

    • So true!! It amazes me that people don’t take the fees into consideration with they see home ownership as the only answer. Unless you can make enough in appreciation to cover the fees, then renting may be a better option for many.

  23. I think the best thing is to stay out of debt. Then you will not have to worry too much about your net worth.

  24. My home is paid off. Even with zero debt, I don’t count it in our net worth.
    Gotta live somewhere!

  25. You are right in calculating your net worth the way you do. I do exactly the same thing. My true net worth is my savings, not where I live.

  26. Great piece! I keep score, probably more than I should, and have been for a while. I love to see the progress we are, or not making. I always struggled with the home value and equity line items because the market has had such wide swings over the years. I have decided to take it out entirely, thinking that if we sell the house, that money is going right back into a house. The house is where we live not an investment, not an asset, it’s a push… This also takes what “zillow” has to say OUT of my calculation. I sleep better at night now.


  27. I used to do 2 financial asset sheets also – for about the past 30 years…. One was for the bank (high values but within reason), required each year for loans on the business, and a more realistic one (get real values) for myself.

    I did one in Jan when I have the tax facts and figures all out, and a 2nd one in July to see the progress.

    These days I only do the one for myself.
    It has been fun over the past 30 years to see the numbers change from the red to the black 🙂 For the home value, I use the local tax assessors’ assessed value and not their real market value, which is high and skewed. The lower value is the one I am getting taxed on, so it seems reasonable to use it, and as most homes out here sell for way more than assessed, I don’t feel that I am overestimating.

  28. This is an old post, but the topic is obviously still relevant.

    This might not be conventional, but if you ask me liquidity is relative. You see this on used goods sites all the time. People have a fire sale (moving, need cash quick, etc…) and price accordingly.

    My point is it’s that I can probably reliably guess at a minimum (short term) value for items like cars and houses for estimation purposes. An appraiser is overkill I think. To estimate the house, I’ll look at the local listings and low ball it by say 10%.

    Barring a crash, that’s a reasonable figure to use as a guide. A downward market move of 10% is newsworthy (i.e. rare) and gives me good buffer.

    Not to mention any good financial plan is conservative by nature anyway. An appraised value is still less “liquid” than my low ball figure – assuming I’m not estimating 10% high 🙂