<p>In the general population, about 7% of US households are millionaires. With CC’s being a highly educated group, I suspect the % here wil be higher than 10%.</p>
<p>On surface, it is very simple. Those who have equal or greater than 1 Million USD in networth is a millionaire. Networth = “what you have” - “what you owe”. How to calculate the networth, however, is a totally different story. </p>
<p>Since the value of your primary residence does not count. Does the mortgage count in “what you owe”? Let’s say you have a $300,000 home and owe $200,000 mortgage. If the $300K value does not count in “what you have”, should you count the $200K mortgage as “what you owe”?</p>
<p>What about your pension and SS? Could you count the NPV of those accounts as part of “what you have”? You pay in every pay check and it is yours, per se, like your 401K.</p>
<p>Do you count the value of your stuffs? The blue book value of your S55, for example?</p>
<p>For those who have achieved the status. Did you get a call from your banker? One day you decide to add up all “what do you have”? Or start monitoring it when you have $800K?</p>
<p>I’ve monitored our “investable worth” by spreadsheet for the last 5 or 6 years (since we turned 50)–mainly so that if I should die, H would know where all the money is squirreled away. </p>
<p>I don’t count the value of the home equity, the value of the pension, future social security payments, value of any household item or automobile. At some time in the near future, we’ll need to figure out how to turn all of the things that we’ve accumulated into a stream of income that will hopefully take us through to the end.</p>
<p>First of all, a million dollars won’t get you very far. Don’t count your stuff’s value- it isn’t worth half of what you paid for it and only has monetary value if someone else is willing to pay money for it. Net worth includes that which you can sell for money- meaning not just the dollars in your bank account but the value of stocks and bonds and other financial entities. Physical goods such as houses and objects are only worth something when sold, then you don’t have them anymore.</p>
<p>The above is my instant take on things. Your financial status as a millionaire (or hundred thousandaire…) is based on what you have available to spend. It is not based on what you own. My feelings, not scientific/acuurate.</p>
<p>Our financial status has fluctuated. I looked at my pension plan’s worth one day and saw it was above a magic number, then the crash came and it wasn’t, now I think it is again. It doesn’t matter until I want to spend it.</p>
<p>Being a millionaire once represented having enough money for future financial security. It meant you could buy anything you wanted and still have money to spend for tomorrow. Now a lot more money is needed. </p>
<p>Instead you could ask how much money would you feel you needed to be rich. For us it means not needing to forgo things we want because the money is needed for essentials such as food, housing, clothing, education, retirement. It is subjective as the money “required” for those varies depending on one’s expectations. If you require a small house and little food you will have a lot more disposable income to spend as you wish than if you need more of those. Everything is relative. It all depends on costs- a dime or a thousand dollars for the same item…</p>
<p>Why doesn’t the value of your primary residence minus what you owe on it count? (Though right now it’s a little hard to know what our house is worth, I think it’s still worth more than we paid for it.) If our house is definitely worth $500,000 and we owe $200,000, it seems to me we have a net worth of $300,000. I’d just be conservative about the illiquid assets vs. the ones that are easy to get rid of. I don’t even know what an S55 is, so I must not be a millionaire. ;)</p>
<p>You get ads to own airplanes or airplane timeshares and other expensive investment properties, your insurance agent tries to sell you umbrella policies, etc.</p>
<pre><code> “I don’t think any banker keeps close enough tabs to make such a call. Most people have assets in several different places.”
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<p>Don’t believe that for a second, unless you are using offshore or some other type of account specifically designed to hide assets.</p>
<p>I’ve always considered net worth to include the equity you have in your primary residence. Net worth doesn’t have to include only liquid investable assets. I understand why some people may say not to include your primary residence as you have to live somewhere. But, you can rent. Someone with 500,000 in equity isn’t in the same financial situation as the guy that just rents but has the same liquid assets. “House rich but cash poor” would cover those folks with lots of equity but little free cash flow or liquid assets.</p>
<p>With regards to the OP’s question you definitely don’t want to incude the mortgage while excluding the house value. Personally, I think the house value should be reduced by an amount for sales commissions.</p>
<p>Net worth can also include equity in cars and personal property. But, personal property should be heavily discounted to its current value.</p>
<p>The big issue IMO is dealing with defined benefit plans in which you are currently vested. Normally, net worth doesn’t include the present value of this significant future revenue stream. But, it may cost you a million bucks to duplicate that guaranteed future pension!!!</p>
<p>dylanr “You get ads to own airplanes or airplane timeshares and other expensive investment properties, your insurance agent tries to sell you umbrella policies, etc.”</p>
<p>You’ll get those ads and proposals just based upon your credit score and the publicly available information that you own a house. BTW - you should buy the umbrella policy.</p>
<p>The facts are…you are not a millionaire if you have assets (things you own that are not liquid) that equal or exceed a miilion dollars. The value of houses, cars, boats ect…do not make you a true millionaire. If you have a million dollars in cash or liquid assets that can be accessed and be turned into cash very quickly than you are a real millionaire. The funny thing about people with real money is that they typically never talk about it, to most it is more about the challenge of making it (the game) than it is about actually having it.</p>
<p>Your banker will call you when the bank feels you should be moved from one account to another. As an example, you need minimum 100k to be qualifed as a premier customer, and lets say 3-5 mill to be qualifed as a private banking customer. Based on your status, you would get more perks, and in turn a bank could also generate more fees from you. Most banks have programs which could figure out what kind of customer one should be, and provides that information to the relationship manager. They will also figure out approximately how much fees each of those acct should generate, and if an acct doesn´t generate enough revenue then the RM is also notified.</p>
<p>It is not unusual for a banker to call if your acct´s status needs to be changed (up or down).</p>
<p>I consider home equity part of net worth, but it’s not like I spend endless hours thinking about these things. We put money into 401(k)s and DH has a defined benefit plan, and based on those #s, we are doing OK for retirement. (This is what I do for a living.) I work on the assumption that our home equity will enable us to pay for a smaller place in cash down the road or for assisted living. I am more concerned with having adequate insurance for the unforeseen disasters that could upset our little apple cart.</p>
<p>If being a millionaire were my goal, we would have pushed our kids into the fine state school with the scholarships they earned. My kids are getting their inheritance now (in the form of tuition/R&B) instead.</p>
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<p>We bought an umbrella policy when DH was a poor grad student. It is cheaper to buy an umbrella policy than to have your coverage limits on auto or homeowners remain sky-high.</p>
<p>You then go on to dismiss the value of your primary residence in that calculation. But I guarantee that if 7% of households are millionaire households, the calculation includes the value of the primary residence. Where, by the way, did the 7% figure come from?</p>
<p>When this calculation has come up in political discussions, a lot of people say that a millionaire is someone who has a million dollars per year of income. (I don’t agree with that definition, but it’s one that a lot of people accept.) </p>
<p>Me, I say, if your household has a million dollars of net worth, counting your equity in your house (so, the value of the house, minus the remaining mortgage), and all your savings including pensions and other retirement savings, then congratulations, you are a millionaire.</p>
<p>“When this calculation has come up in political discussions, a lot of people say that a millionaire is someone who has a million dollars per year of income. (I don’t agree with that definition, but it’s one that a lot of people accept.)”</p>
<p>I recall they wanted to institute the millionaire’s tax at income of $250,000.</p>
<p>Your question reminded me of something my son said when he was ten years old and got a $1,000 Happy Birthday check from my mother… “I’m a thousandaire!”</p>
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<p>Ever hear of diversification? That could mean stocks (mutual funds, individual companies, etc.), bonds (mutual & treasury). It could also mean 401K, insurance, and yes, real estate, gold (?). This has nothing to do with anything illegal and no crazy high-risk/high yield aspect of using your money, just regular diversification. BTW, to accurately determine your net worth, you need to get the book value of these investments, not what you paid for them. To do that correctly, you’ll need to update that info everyday, based on trading prices.</p>
<p>ETA: “being a millionaire” is based on your net worth, not your revenue stream each year.</p>
<p>“Is there really a pea under one of those three walnut shells?” asked the mark. “Well,” replied the cagey con man “that depends.”</p>
<p>So much depends on the individual and investments involved. If you’re Elvis and all the men in your family die young, then you probably don’t want to include NPV of Social Security in your calculation. If on the other hand you’re like my inlaws, who typically mow their own lawns into their mid-80s, including Social Security makes sense. If you live in a home you can’t imagine leaving, then you’ll want to leave the value of that home out. If you’ve already lined up a realtor to sell the house, including net proceeds probably makes sense. If you have an annuity with no post-death distribution, you may not want to include its value. But it’s probably valid to include the NPV of any residual (which, granted, will be an estimate since you won’t know when distribution to beneficiaries will occur).</p>
<p>There’s also one area that significantly affects our family … investor personality. Ten years ago that bluest-of-blue-chip stock General Electric was worth $60 a share. Today it’s less than a third of that, and if you sold your holdings in March 2009 you’d have lost 90% of the earlier value. So, if you have a lot of stock exposure, you might want to figure in your own investment behavior. You don’t have to invest with Madoff or own LEH to experience large losses in the stock market.</p>
<p>^NewHope, even if you can live until you’re 100, why would you include future income in your calculations to determine your net worth? Well, you shouldn’t.</p>
<p>Your net worth is a snap shot at any one time. It includes the value of all your assets minus the value of your liabilities at a particular point in time. It’s that simple.</p>