Year End Financial Benchmarks: Net Worth and Property Valuations

One of the personal finance tasks that Mr. GoTo likes to complete at the end of each year is to establish and document a few financial benchmarks.  These benchmarks can also be important milestones in a comprehensive retirement plan.

Net Worth as a Financial Benchmark

First and foremost among these financial benchmarks is our joint net worth.  While many U.S. consumers are fretting about their credit scores, I think that most baby boomers should be more concerned about net worth because it is that positive net worth that will be used to provide needed income in retirement.

“Net Worth” is determined by separately listing and valuing all of your assets and liabilities, then subtracting the total liabilities from your total assets.  For those who are like me and use personal finance software (such as Quicken or Microsoft Money) to manage their financial affairs, determining net worth is simply a matter of few mouse clicks.  This assumes, of course, that your software contains complete and accurate data of all of your bank accounts, credit accounts, investments, and other major assets such as real estate and vehicles.  Our software incorporates all of this data and I include all of these categories in the calculation of our net worth. 

I do not include other personal property such as furniture, clothing, and other household items in our net worth calculation.  To me, it is not worth the trouble to keep up with these smaller items and their values.  Moreover, items of household personal property (other than valuable collections or antiques) are unlikely to be usable as a way to generate income in retirement.

One of the reasons I make a special point to calculate our net worth at the end of each year is that it causes me to seek out current valuations for our real estate (primary home and vacation home) and vehicles.  Although it is relatively easy to obtain and import current valuations of stocks, bonds, and mutual funds, it takes more effort to get those valuations for real property and cars.   The end of each year is just a convenient and logical time to get that data and use it in the net worth calculation.

Residential Real Estate Property Valuations

Valuing your home or other residential real estate has become easier because of the availability of online resources.  Three of the most popular real estate valuation sites are Zillow.com, HomeGain.com and Trulia.com.  Zillow and HomeGain will provide an actual valuation estimate or range based on sales of comparable homes.  Trulia focuses more on valuation trends and average home prices in specific markets.  

Personally, I use combinations of data from Zillow and HomeGain to arrive at a valuation of our principal residence to use in our net worth calculation.   These sites do not have all residential properties in their systems.  For example, entering our vacation home address in Zillow or HomeGain will not provide a valuation estimate.  In that case, I look at data that is available at these sites and at Realtor.com of recent sales and properties for sale in the same area.  This allows me to adjust the valuation I place on our vacation home in our net worth calculation.  It’s not perfect but it at least provides information about positive and negative movements in sales prices.

Motor Vehicle Valuations

Some baby boomers would not include their motor vehicles in a net worth calculation because they are a depreciating asset.  I like to include vehicles for that very reason.  Watching the values decline as a function of time reminds me of why I prefer to purchase used vehicles instead of new vehicles. 

My preferred sites for vehicle valuations are Edmunds.com, Kelley Blue Book (kbb.com), and NADAguides.com.  It is relatively easy to obtain accurate information tailored to your vehicle at each of these sites.  If you have a used boat, motorcycle, or RV, the NADA site even has data for those assets as well.

I encourage all baby boomers to use the end of the year to accurately update their asset valuations so that they can obtain and benchmark their net worth.  This will provide needed information for evaluating their overall retirement plan.

Image credit:  Sergio Roberto

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