I enjoy listening to talk radio, primarily the business talk radio. Yesterday, I was listening to The Ray Lucia Show when he received a call from a gentleman that wanted to discuss saving money on taxes.
The gentleman is 45 and owns his own company that profits $250,000/year. While he does not have any retirement savings, he owns his home outright and has rental homes and a commercial property that are nearly paid off. Pretty awesome, especially for a 45 year old. What threw me off was when Ray asked him his net worth, the gentleman replied $3,000,000 to $4,000,000.
I didn’t even hear Ray’s answer to the tax question because I couldn’t get over the insanely wide range of $3,000,000 to $4,000,000. Granted, the gentleman was put on the spot and, with the instability in the housing market, it is difficult to know exactly what property is worth. But not knowing your net worth within $1,000,000 seems incomprehensible to me. For us, that would mean the difference between retiring and not retiring.
I suspect the range can easily be explained:
The chap mentioned seems to have the bulk of his net worth in illiquid investments: his business and various types of real estate. For assets that sell infrequently, coming up with an instant liquidation value within 25-33% as he did is not terribly unreasonable. If he has no intention of selling any major assets in the immediate future, I don’t see any reason why he would crunch numbers to come up with a more exact appraisal. Even if he has looked at the numbers closely, pre-tax and post-tax figures could easily differ by that much.
Aside from some real estate, I keep the bulk of my assets in *highly* liquid markets: stocks, bonds, futures. Even so, and even if we were to agree on whether the question was pre-tax or post-tax, I’d still be hard pressed to estimate my net worth closer than 10%. I doubt if most people with the bulk of their assets tied up in their home could do better.
–No One Important
Good point, No One Important. I hadn’t even considered the pre-tax / post-tax issue.
I still think 25%-33% is quite a range. 10%, on the other hand, seems more reasonable.
Nonetheless, I hope one day to be in the position to have this gentleman’s “problem”. As you can see from our net worth number, we have a ways to go.
-1MansMoney
If I had $3,000,000+ and was making $250K. I would not be concerned with the exact number either.