Why Your Home Should Not Be In Your Net-Worth
Assets – Liabilities = Net Worth ------ this is a calculation that I am sure many of you have seen and probably have already calculated a few times in your life.
If you are planning to own a property in the future or already own one – do you choose to count your house as an asset? Hint: Many people do.
This question has been swirling around for ages and I anticipate it will swirl around for a few more and in my personal opinion I do not believe it should be included in your net worth. Yes it likely has a high value and it is under your possession but the implications it presents can be very misleading.
One of the dangerous things this poses is that it gives a false sense of financial security. Say you bought your house this year for 500k and put it in your net worth. Congrats your 500k richer! But the value of your house is not fixed. In 10 years from now there is no guarantee your home will still be worth 500k dollars even if you paid off your mortgage. This is one of the dangers that many people do not realize and therefore they become financially dependent on the value of their home – skimping out on additional savings because they think their house will save them. Yes, it is true that people say real estate is a good investment because land only goes up in value because there is a limited amount and usually property prices go up but that is not always the case.
One thing people always forget about also is that when the house is ultimately sold and you are sitting with a new cash infusion – where are you going to live? Yes, your asset column has just been boosted but your liability column has increased as you have just incurred additional living expenses.
Finally, when you sell a house – remember that you are never receiving the whole amount that the house sold for. There are countless listing fees, commissions, legal and moving fees that need to be taken out before you get your money.
Disclaimer: All of the above information is my own personal opinion it should not be used as financial advice. Please consult with a licensed representative when making any financial decision. Examples are for educational purposes only.
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