Primary residence – to include or not to include it in your net worth calculation

Do you include your primary residence in your net worth calculations? I do but I admit I have doubts whether to include it or not.

 

Reasons for including:

  • It is indeed an asset that you have. In case of financial stress, you can always sell it and move somewhere cheaper or where you pay a small amount of rent. You can also rent it fully or partially.
  • The fact that you own your primary residence means that you do not have to pay rent, i.e., you are indeed saving this money on rent you would have to pay if you did not own it.

 

Reasons for not including:

  • It might artificially inflate your net worth. If you have a house which is worth 1 million EUR which is the only asset in your portfolio and debt of 200k EUR, that situation is totally different from someone who has a 100k EUR home, 900k EUR in assets that yield 7% a year and 200k EUR in debt. The second person can be considered nearly financial independent, whereas the first one is very far from it.
  • According to Robert Kiyosaki your house is not an asset and I agree with his arguments. Our primary residence does not yield us money and generally takes money away from us, in taxes, maintenance, etc. in addition to the fact that we generally buy more expensive goods for our primary residence.

I have decided to include it because I believe argument #2 is very strong, i.e., the fact that we own a property means we will not have to pay rent elsewhere, however I admit my net worth will be highly inflated by my primary residence, which I value at 380.000 EUR, in particular as I pay down the debt.

It almost seems as I giving in to lifestyle inflation and this is positively reflected on my net worth. My net worth is being benefited by the fact that I am kind of falling in the trap of lifestyle inflation, which should not happen. Nevertheless, I would indeed pay at least 1k per month if I did not own it and lived in a house slightly worse off that the one I bought. What are your thoughts?

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2 thoughts on “Primary residence – to include or not to include it in your net worth calculation”

  1. I would say you should always include it in your total net worth calculation, but you should be careful if you depend on this same total net worth to retire early as most of it is illiquid if you don’t plan on moving.

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