Friday, February 02, 2007

Net worth -- how do you count the 'stuff?'

Quick post to draw your attention to the fact that I've updated my net worth for January 2007 (you can see the graphic on the sidebar to the right)

NetworthIQ tells me I'm now worth $28,727 -- a $1,583 (5.83%) increase from the end of December.

Much as I'm pleased that the little line keeps pointing in the right direction (yay saving!) the reason I thought I'd make this a blog post in and of itself is because of a conversation I had with my girlfriend recently about getting renter's insurance.

We had a break-in a while back. Nobody was home and the only things taken were her jewelry (my iPod, laptop, camera and Xbox were all in plain view but were left untouched) and while it wasn't really traumatic for me, I can tell my girlfriend is still very edgy due to the whole "feeling violated" factor.

As such, she's big on getting renter's insurance. I'm open to the idea myself since it seems surprisingly affordable, but one of the requirements is that we obviously have to have everything in the apartment accounted for and possibly appraised.

My girlfriend asked me to ballpark the total replacement value of everyting we own and I said somewhere between $5,000-$10,000. Her guess was much higher -- something in the neighbourhood of $25,000. At first I thought she was way off, but now I'm not so sure. I know we wouldn't get back exactly what we'd paid for all the stuff -- just the replacement value of it all, but the more I think about it, we have a lot of little things adding up. Electronics alone, I'd say there's a few grand right there. A 35-inch TV, DVD player, Xbox 360 system, two laptops, one desktop, two digital cameras and two iPods. That right there would cost around $4000, minimum. Then you've got a couch, a bed, bedroom furniture, coffee table, chairs, kitchen's all adding up. And we haven't even gotten to the two complete wardrobes for upwardly mobile young professionals.

I think the real answer is probably somewhere between our two guesses. $10,000-$20,000 maybe? I have no idea. I guess that's the insurance company's job.

The reason I'm wondering about this stuff publicly is that right now I don't include any of it in my net worth calculations. If the insurer decides I've got $30,000 lying around in my couch cushions, I'll consider including it in future months. But for now, I don't want to artificially skew my numbers like that.


My Financial Journey said...

Personally I would leave it out just because it's so hard to keep track of and really what actual cash value does it have for you and how likely are you to decide one day to sell all of it. If you tried to liquidate this stuff in a couple years would you really get $20k for it?

Also do you want to keep track of every time you buy anything in your house or what if you Ipod breaks are you then going to deduct it? To me stuff like that even though some people count it in net worth really isn't appropriate.

GIV said...

Thanks MFJ,

Those are pretty much my thoughts exactly. To me, the whole point of a "net worth" is to decide how much cash you could get your hands on, in somewhat of a hurry, if you needed to, if some sort of alternative investment opportunity came along.

I'm unlikely to seel any of those things for their cash value. If I did it would probably be for fun money, or just to clear out my house :)

bluntmoney said...

Well, for net worth reasons, I do "poorly attended garage sale" values, because I could in fact make a minimal amount of money off my possessions if they were sold. For insurance purposes, I'm betting your girl friend is right. I wouldn't leave it up to the insurance company though.

Anonymous said...

Don't expect that your insurance company will assign a value to your 'stuff'. They don't care, and after all, it's YOUR stuff, not the property of the insurance company.

If you're buying renter's insurance, it's a good idea to know what your stuff would cost to replace if it was all destroyed (if your building burns to the ground in a fire, for example). While it doesn't make sense to me to include the value of personal possessions in net worth (vehicles excepted), it makes a HUGE amount of sense to put together an inventory of your possessions with their approximate value.

If you do suffer a large loss, it's pretty much impossible to put together a list of what you need to replace, and the insurance company will love you for it - if you can't document exactly what was lost, you'll have a much harder time getting them to pay you to replace it all.

Just don't keep the inventory in the same spot as your stuff - store it in a safety deposit box so that it doesn't go up in smoke when the rest of your stuff does. said...

I leave out all my "stuff" as in the long run it's:
a) a trivial amount
b) you'd never sell most of it
c) it depreciates in value
d) it's a hassle to value (as you know)

If you do decide to include the value of "everything you could sell" in your net worth, don't forget to value your blood, one kidney, etc. etc. ;)

Finally, net worth is tracked in order to check if everything is going according to plan eg. investment returns are as expected, risk (variability) is as expected, you're adding to your investments per your savings plan, paying off debt according to schedule etc. It's not a score to be compared to others, so adding some extra items (that don't have any investment return targets etc) is a pointless excercise.


digerati said...

The point of insurance is to protect you for those things you can't recover from. Insuring "stuff" doesn't really accomplish that. I'd say if you are going to insure thing in your apartment, do the big items and anything that is hard or impossible to replace. That means any art, big tvs, laptops, etc.

Also, I think they say the average person has about $25,000 worth of stuff, though most of it isn't sellable.

Canadian Capitalist said...

Personally, I sorta keep track of home inventory for insurance purposes but don't include it in net worth.

I'd say your girlfriend is right and you probably have to spend $25K to replace everything you have.

I think you should get renter's insurance just because you just don't realize how much stuff you accumulate over the years and it is going to be a significant expense replacing them. The cost of renter's insurance is fairly small and if you combine it with your auto, you are likely to get a discount on both.