Estimated reading time: 16 minutes
Understand the impact of your home value on your net worth calculation. Learn key factors to consider before including your home in net worth estimates.
Get the most from this valuable asset today!
Including Home Value in Your Net Worth May Not Be A Smart Idea
Your home is likely your most valuable asset; however, whether you should include it in your net worth depends on key factors.
A home value takes up a massive chunk of your net worth picture and fools us into having more cash.
Some of you may consider your home a positive unrealized value subject to market risk.
This means until you sell it, there’s money in it, but you don’t know where you’ll end up with your net worth calculation.
Your home is not liquid cash. It’s an asset called a hard asset, as it’s hard to get anything from it unless you downsize.
That means that unless you sell your home, you only have a home with money tied up.
Unpopular Scenarios Relying On Your Home For Retirement Capital
If you plan to sell your home to feed your retirement, you may face a bumpy road ahead.
- The market is flooded
- Home values drop
- First-time buyers can’t afford to buy
- Home selling less than you imagined
- Your home sits on the market
- Supply exceeds demand
Importance Of Net Worth Calculations
Determining your retirement needs with and without your home listed as an asset has benefits and risks.
For simplicity, net worth is your assets minus your liabilities, which seems pretty straightforward because it is.
Related: How to Calculate Your Net Worth
I’ve posted our net worth update on Canadian Budget Binder since 2012 and included our home in our net worth statement.
Our retirement vision has recently changed to living a simple life and enjoying what we have accomplished.
Mrs. CBB and I discussed whether that was a smart move, and we decided to stick with it, which I’ll explain below.
However, having money tied in a house you plan on living in after you retire only blurs the lines of wealth for people.
Is Your Home Value A Financial Asset?
Dear Mr.CBB
When you do your net worth update post, I notice that you include your home value as part of your net worth.
I’ve heard conflicting information about whether to count your home in a net worth statement.
What are your thoughts about this topic?
We currently own my home with a mortgage that will be paid off when my wife and I are 65.
At this point, we are not sure whether we plan to stay in our home or downsize to something smaller and cheaper.
We’ve also considered our health as my wife works part-time, but she is not sure how long that will last.
I work full-time in a career that offers me a great pension, and we both have investments in our RRSP and TFSA.
If we choose not to sell our home, why bother including our home value on our net worth statement?
Thanks for sharing your opinion.
Chris and Judy
Counting Your Home Value As Retirement Capital
Hi Chris and Judy,
That’s a beautiful question I’ve meant to talk about on the blog for a long time.
Sometimes, the readers send me their finance questions, reminding me of the importance of specific topics.
Although I’m not a financial advisor, we do work with one, and there are reasons why we include our house in our net worth.
There are pros and cons to including your home as capital in a retirement planning situation, which I will discuss below.
I hope our insight will inspire you to talk to a trusted professional about your situation based on your net worth and retirement.
Recognizing retirement capital depends on whether you want to keep your glasses on, off, or hanging off your nose.
Calculating Net Worth
If you’ve never calculated your net worth, now might be a great time to do so if retirement planning is part of your financial plan.
It will be worth it if it’s not because you’re too young to think so far into the future.
Your assets-liabilities net worth calculates your net worth.
This is your assets, anything that holds value minus what you owe in debt.
Assets include your home, rental home, cottage, jewelry, investments, or vehicles.
Liabilities, on the other hand, are any debts that you owe.
You can read more about the debt-to-income ratio and how to calculate your net worth on CBB to learn more about them.
How many of you have parents or relatives who are older people and still living in their first home or a home for a very long time?
Many people we know have parents in this situation; however, things are different with today’s economy and low mortgage rates.
We see homeowners buying and selling far more frequently and wanting bigger homes, taking on a larger mortgage.
Purpose Of Calculating Home Value In Your Net Worth
Yes, your home will most likely give you a return, but like anything else, the risk is involved based on the current real estate market.
Mrs. CBB and I discussed the purpose of calculating our home value in our net worth statement.
Our mortgage was not fully paid when we began tracking our net worth. However, it is now.
We needed to understand the purpose of including a home value in a net worth statement.
That’s the question you must ask yourself.
Calculate these two possible scenarios if you plan on retiring soon and want to know your overall net worth.
Which Strategy Works For Your Retirement Plans?
One situation would be retiring without adding home value to your net worth, allowing you to see an accurate picture of your financial health.
The other scenario would be calculating your current net worth without your house for a realistic approach.
You can technically do this any time, as you’ll learn what we do that you don’t see on CBB.
Downsizing To Free Up Retirement Cash
On the other hand, if you have years in your pocket before you retire, you can add it, but consider whether you will sell it.
Selling your house to downsize or move to a smaller city where houses are cheaper will allow you to cash in on the equity.
Not everyone who retires will do this, which means their home may be paid off, but that’s about it.
Anyone with equity in a home can apply for a home equity line of credit, but why would you want to do that after you retire?
You’ll likely get desirable rates, which is why it can be lucrative; however, it is risky if you struggle to pay it back.
I’m sure many people tap into their home equity in retirement for various reasons.
Perhaps you want to invest in real estate or another big adventure, putting you back into debt again.
Debt-Free Retirement Living
Ideally, having little to no debt and a mortgage-free home in retirement is a safe spot for older people.
Why? Living without worrying about paying off massive debts when you’re older is more leisurely and stress-free.
Anything can happen, meaning your house is just a house unless you free up the cash by selling it without increasing debt.
For example, let’s say that when you retire, you’ve created a retirement plan you want to net $50,000 a year.
If your home is worth 1 million dollars, paid in full, and it’s your only asset, you will need to sell it.
However, if you have investments or pensions coming, you should factor in how much you will use each year.
You’d still need to sell down if you cannot sustain $50,000 a year from your other assets besides your residence.
Re-evaluate Retirement Finances
The other option would be to re-evaluate your retirement planning needs so you can stay home until the end.
This will allow you to use any income for your retirement, including investments, government funds, and savings.
Not everyone wants to sell their home when they retire because it has become their kingdom of memories.
So, ask yourself why you include the home value in your net worth.
If it’s just to see how much you are worth IF you sold your house, that’s a significant number to know.
On the other hand, if you want to see your net worth without your home, don’t include it.
You can do both, but be mindful of the consequences of which one you choose to live by.
Two Situations To Consider When Summarizing Net Worth
Consider planning your future living costs with a retirement checklist before the special day.
Below are two situations Mrs. CBB and I could face in the future that we’ve considered.
First, I want to mention that you must be on the same page if you are married or common-law.
You don’t want to find out at the last minute that your spouse has no intentions of downsizing or selling assets for cash.
- If we plan to stay in our home, we will not include the house as part of our retirement plan. Even though the mortgage is paid in full, we have ongoing bills.
- In the future, if we plan to sell our home and downsize, freeing up cash, that would be part of our Future Investment (FI) plan.
Net Worth Examination
When we calculate our net worth, we look at the following categories;
- Liquid Cash on hand
- Investments, including pensions, business income
- House value and profit if we sold plus any costs involved (our home is paid in full, but if yours is not, then consider what you owe vs. any profits made if you sold it)
- Current vehicle value
Calculating Net Worth With and Without House Value Included
If we sold it today, you won’t see the numbers we calculate as we lump them all apart from our house and vehicle worth.
You’ll also notice that we haven’t increased the value of our home in our net worth statement for many years.
We bought our house for $265,000, and comparable homes on our street now sell in the $700k range.
Our home value increased once to $345,000, but we decided to leave it at that because we don’t know if we plan to stay or go.
Behind the scenes, we document our net worth with and without our home so rose-coloured glasses don’t blind us.
Anything can happen in the future, so staying realistic with our retirement planning is our more brilliant route.
Working With Our Home Value And Net Worth Calculations
As of the date I pulled, our finance numbers or net worth, including the $345,000 house value, is $1,214,183.86
We know our vehicle is an asset that will only drop in value over time, so we are considering this.
Let’s have a look at what our net worth is without the house included.
Net Worth with house $1,214,183.86–$345,000 House valued in our net worth = $869,183.86
That’s the number we genuinely look at because we can’t predict our housing situation for the future.
We also can’t predict how the investment markets will do, so overall net worth is just a snapshot of potential wealth or debt.
If I were to calculate our net worth using the market value of our home today, that would increase it to $1,569,183.
It looks good on paper, but that’s about it for now.
Risk Factors Of Including House Value As Part Of Net Worth
- Not Cash In Hand unless you sell or get a home equity line of credit if needed
- A false sense of financial security unless the owner downsizes and sells other assets for cash
Benefits Of Including House Value As Part Of Net Worth
Future Unpredictable Situations To Consider Before and During Retirement
If you plan to rent in retirement and your house is paid off, it will be cash in hand; however, keep in mind future rental inflation.
There’s also a possibility that one of you passes away, becomes very ill, and needs care or is put into long-term care or retirement living.
Selling your house may or may not net you the cash you expected and need or want.
Lots to consider, that’s for sure. Luckily for my mother-in-law, we sold her house for far more than my inlaws ever imagined.
Fortunately, the house sold in an area that gained multiple potential buyers wanting to purchase it.
This won’t happen to everyone.
The house was their retirement savings and a work pension from my father-in-law.
Thankfully, it will be enough money, including her government pensions, to give her everything she needs until the end.
A friend of ours put an offer in on a house that needed lots of work and listed for $600,000.
There were 13 offers, including hers, and it sold for $750,000.
The problem with relying on these bidding wars is that they are not realistic for every house sale but certainly a nice financial perk.
Final Thoughts – To Include or Not Include Your Home Value For Net Worth
Calculating the three different scenarios is the best way to see a realistic net worth and a potential net worth.
You’ll need to calculate your retirement needs without your house value.
That’s the closest you’ll get to ensuring you’ll be financially stable during the golden years.
Three types of net worth calculations you can evaluate
- Without the house included, we know what we may have if we stay there.
- Adding a slight increase in the value of our home just in case the market crashes and we need to move.
- Including the current market value of the house if we were to sell
Overall, we’re happy with how we see the retirement net worth figures and understand there will be risks.
Discussion: Do you include your home in your net worth update? Why or Why not?
Please leave me your comments below.
Net Worth Losses and Gains
What happened to our money in October?
Anytime we see a net worth increase, it’s a good month, but at the end of the day, it’s the overall performance at year’s end.
I can’t believe we will finish 2020 shortly; honestly, I’m ready for it to be done.
We spent more on our monthly budget than anticipated; however, we save monthly for many expenses.
Next month, for example, I bought a new laptop I did NOT plan for in 2020.
That will hit our net worth, but it was a business need so I can claim it on the business taxes.
How was your month?
Share your comments below.
Net Worth 101
What DoesIndividual Net WorthMean?
Net Worth is a snapshot of your financial health, like a picture of debt to net assets.
In simple terms, it’s atotal of the value of your assets minus your liabilities.
We credit our net worth growth due to patience, perseverance, monthly budget use, and not giving up.
Your numbers may go up and down, but don’t let the numbers scare you.
If you would like to use our budget, I offer a FREE downloadable budget that I created and that you can use.
I don’t charge for it because I want you to save money, not spend more!
There are many other free resources at Canadian Budget Binder to help you build your net worth.
Calculate Your Net Worth
Do you know how to calculate your own Net Worth?
We like calculating our monthly net worth to know if we are still on track.
Some people calculate it yearly or quarterly, but it’s up to you and how informed you want to stay.
Net Worth is only an estimate, and not everyone uses the same type of figures to tally it up.
Some of you may not include vehicles as we do or leave out assets inside the home as we have.
You might be that person who believes that your house should be excluded.
It depends on what you want to calculate or what you can sell today and make money for tomorrow.
Determining your net worth is relatively easy as you know your monthly financial numbers.
Net Worth is adding up all your assets(what you own) and thentaking away your liabilities(what you owe), giving you a net worth number.
Understanding your net worth will help determine if you are on track to meet or beat your financial goals.
Itdoesn’tget any easier than that.
Determining Your Net Worth
How to Determine Net Worth?
Net Worth = Assets – Liabilities
Why not go ahead andcalculate your own using our Free Money saving Tool,Net Worth Calculator (Canadian Budget Binder 2012)
Financial Numbers
Whenbudgeting,anything is possible; we are proof of that, although we still have a long way to go in our journey.
These are our numbers and goals, not a means of comparing your own goals to others’ target goals.
We don’t care how much money others earn, whether they have a high net worth or lower than ours, as it’snot competition.
I hope our experiences will help guide you along your financial path, working towards debt freedom.
Not everyone has the same path in life.
Some of you may have had to start over like I did or go to school again and now have OSAP loans to pay back.
Others may have divorced, lost money in the stock market or other investments, suffered job loss, fell ill, or injured, but you can’t let that stop you from achieving your financial goals.
You may have been given trust funds, paid-for homes, education, or other perks that give you a financial kick-start, and that’s OK, too.
Earn It, Save It, Invest It, Build It
Remember what I said,“It’s not about how much money you make; it’s how you save it.”
People accumulate wealth because they know how to save or invest, even if inherited or a lottery win.
The most minor improvements should mean significant strides in reaching your goals.
Sometimes, we have to fail to learn, and we’ve all been there.
Money can be evil for some people, especially those with a negative attitude towards their financial situation.
Be optimistic and, little by little, with determination; you should see improvements if you want that to happen.
Canadian Budget Binder Net Worth Updates 2020
Click the links below to read our net worth updates for the year 2020.
- January 2020 Net Worth Update
- February 2020 Net Worth Update
- March 2020 Net Worth Update
- April- Oops, I forgot
- May 2020 Net Worth Update
- June 2020 Net Worth Update
- July 2020 Net Worth Update
- August 2020 Net Worth Update
- September 2020 Net Worth Update
That’s all for this month’s net worth update, but please check in the middle of December 2020 to see how we made out in November 2020 with our financial portfolio.
Woohoo, the year is almost over, thankfully.
~Mr.CBB
Note: This page may contain affiliate links where this blog earns a little income if you use a product or service.
- 3 Advantages Of Starting A Monthly Net Worth Calculation
- Net Worth Update May 2012 CBB-Simple is Best!
- What is a high net worth?: January 2014 Net Worth Update
- CBB Family Net Worth Update~October 2012
- January 2012 Canadian Budget Binder Net Worth Update
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