We have been blessed with good incomes for the past 8 years, breaking the $100K mark in household income in 2008 and working our way up to ~$250K in 2014. Our net worth has grown considerably as well. From $23K at the end of 2008 to nearly $300K at the end of 2014.
With that being said, I feel like we should have made better progress on our net worth, considering our incomes. I looked back at the last couple of years and determined that a considerable amount of money has been “invested” into our new home, but are not accounted for it in our net worth calculation. Some of the larger ticket items are:
$7,000 new HVAC
$1,200 new pool pump
$1,700 pool fence
$1,600 white picket fence in front yard
$1,800 security camera system
$1,500 refrigerator
$2,500 wash and dryer
$600 dishwasher
I use the purchase price of our home ($489K) for its value when calculating our net worth. If I included home appreciation, that would add another ~$150K based on comps in the area.
I have no plans to begin accounting for improvements to the property or home appreciation but it does make me feel good to know that we bought at a great time and have invested in our home to make it safer, nicer, and if we sell one day, maybe more valuable.
How do you account for your home as an asset?
I usually take the municipal evaluation when accounting for my home. It’s not perfect but at least it move over time to reflect inflation and big market corrections.
For my rental build I did 25k$ investment project on it and didn’t want to consider it a net loss. What I did was add the project value to the evaluation but depreciate it at 500$/month. If my evaluation raise before I’m finish depreciating, I’ll just stop counting it.
That sounds like a good strategy, TheEightDigit. We’ve lived in our current house for less than 3 years; I plan to revisit how I account for appreciation and investments to our property down the road, but will keep it simple and understated for now. If we make a change in the future, I might have to steal your ideas!
Kurt @ Money Counselor left a comment that was lost while I migrated my blog from Blogger/Blogspot to its own url, http://www.1mansmoney.com. I’m sorry about that, Kurt. I have included your comment below:
“My wife EXcludes home value when thinking about our net worth; I INclude it. To me it should count because we will one day down size, sell & rent, or get a reverse mortgage. Excluding it totally therefore underestimates our potential retirement savings / income.
But my wife has her own logic. 🙂 “
Kurt, I agree with your point of view. Doing so also accounts for any accelerated mortgage payments that could have been invested elsewhere.
We paid $1,100 extra to mortgage principle last month and I would have been so disappointed if it wasn’t reflected in our net worth:)