Sunday, January 7, 2007

Financial Law: Consumer Goods Shall Not be Included in Net Worth. Good Call.

I was really surprised to see that some people include things like cars, jewelry, and golf clubs in their net worth estimate. I have several problems with this.

While I understand that new worth does technically include those things, I think it's misleading to yourself to inflate your financial picture with "stuff." If an investment opportunity came a long, would you liquidate your "stuff" to invest in it? Probably not. Do you plan on selling your stuff to live on in retirement? Probably not.

Secondly, it's impossible to know what you might get for your "stuff" until you actually try to sell it. Craigslist.org is full of stuff that is being sold at 1/2 to 1/3 of it's retail value. My mechanic friend that buys old cars to fix up and sell took some major losses when gas prices shot up on the trucks he had in his inventory. "Stuff" isn't very liquid and you just can't count on getting fair market value.

2 comments:

Madame X said...

I totally agree. Your stuff probably is worth a lot more to you than it would be to anyone else you tried to sell it to, so it's not worth seeing it as an asset unless you have valuable fine art or really expensive jewelry or something like that.

Asha said...

Well said.