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Let’s examine what is in our net worth


This is a follow up to – Can you retire with a million dollars? Some readers pointed out that a million dollars net worth is very different from having one million dollars in investable assets. You could have $500,000 tied up in your home and other assets and you won’t have much left over to generate money for you in retirement. So I thought I would examine our net worth to see where we are.

Short Term Fund

Cash – This includes emergency funds (18 months expenses), operating funds, and a cash cushion. Our cash position is a bit higher than I’d like right now, but I’m planning to move some into a solo 401k and our dividend stock account later this year.

Mid Term Fund

Passive Income Generator – We have a dividend portfolio, rental properties, P2P lending, and I Bonds here. We use some of this income to pay for our living costs and reinvest the rest. Currently, I like our dividend portfolio the most. It is gaining value and I don’t have to spend much time on it. The rentals are a big headache. P2P lending is not bad at 8.66% ROI, but I’d like it to be closer to 10% with the risk I’m taking. I Bonds are good, but the rate is too low.

Long Term Fund

Retirement accounts – These funds are reserved for when we’re 65+. The 401k and Roth IRA accounts are great tax shelters and we won’t touch them unless it’s the last resort. I also have a small pension that’s worth about $20,000 right now. Mrs. RB40 might have a pension if she sticks with her current employer for 13 more years…


Dead Money – This is what I call our home and car. These are just things that have value, but are not making any money. This isn’t very high for us because our home still hasn’t recovered from the housing market bubble blowout.

Assets that could be sold – Artwork and collectibles.

College Fund – This is RB40 Kid’s college fund.


We don’t have any consumer debt so that’s easy. We do have mortgage debt, but I just take the value of the property minus the mortgage and they are all positives.

take a closer look at your net worth

From the pie chart here, we are not doing too badly. Nearly half of our net worth is in our retirement accounts. We won’t touch them for another 25 years so they should have plenty of time to grow. Another big slice is in the Passive Income Generator. This is inflated a bit because we won’t net that much money when we sell our rentals. Our take would be reduced by depreciation deduction, commissions, and other factors.

I guess the good thing about our chart here is that a very large majority of our net worth is busy making money for us. The Dead Money (house and car) is just a small part of our net worth.

What will our net worth looks like in the future?

At this point, we still have active income and we will continue to build up our retirement accounts. It will be interesting to see what this chart will look like 10 or 20 years from now. I suspect we’ll keep shifting more money into the tax protected retirement accounts so that portion will keep growing. When we eventually fully retire in our 60s, we’d shift some of that out into the passive income generator again.

Have you taken a closer look at your net worth? Is your money busy working to make more money for you?

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 41 comments… add one }
  • I need a passive income machine to ensure an easy retirement. Last month I received about $2 in dividend income from one of my stocks so I have a way to go.

    As for assets that could be sold my stuff isn’t worth very much except for family heirlooms that I am the generational custodian of and I do not feel that I have permission to sell what is family history and not my personal possessions.

    • retirebyforty July 17, 2013, 9:07 am

      It’s hard to get things rolling, but keep working at it. It will keep getting better and better. I don’t have any family heirlooms so I don’t know how that would feel. 🙂

      • The heirlooms that I am custodian of are physical evidence of my family history.

        Each has a story and sentimental value. I have an engraved silver dish that was presented to my grandfather from his cavalry regiment upon his retirement after World War 1. It is very heavy and would fetch a good dollar with silver prices being so high and I am always struggling to make ends meet but family history is priceless.

        I am sorry that you don’t have heirlooms to pass to down but I do hope you have the stories.

  • The Dividend Guy July 17, 2013, 5:08 am

    I currently show a net worth near 250K with 560K in assets (and obviously 310K in debts). My biggest assets are my house (351K of dead money), my online company shares ($126K of not so liquid money) and my retirement fund (75K). My biggest flaw is that I’m not liquid but beside my house, my money is definitely working for me 🙂

    • retirebyforty July 17, 2013, 9:09 am

      I haven’t added my online company value. I have no idea what it is worth. It is making some income so it should be worth something.

      • The Dividend Guy July 18, 2013, 4:05 am

        It’s definitely worth something 🙂

        I see the derived income from my online company as a dividend. We use a simply calculation method to establish our share value:
        average monthly income over the past 12 months * 36 – corporate debts + cash.

        I receive over $30,000 per year in benefits from my online company so I guess that putting a value of $125K is reasonable. If I had this invested in the market, it would generate a 24% dividend yield 😀

        • retirebyforty July 18, 2013, 9:05 am

          That’s a good way to value it. I’ll add it to our net worth after this calendar year. 🙂

          • The Passive Income Earner July 19, 2013, 8:39 am

            I don’t want to crash the party but I also think it’s important to be realistic in terms of value on blogs as often time, it’s tied to the person as opposed to the goods. Advertising revenues is not as simple as products to sell with a guarantee of value X. We debated this already on TFB 🙂

            I do like the valuation methodology though and it’s always inspiring but the final value would not always be fetched in my opinion.

  • Steve July 17, 2013, 5:45 am

    I’m not sure I agree with the house being “dead money.” Don’t get me wrong; I’m no “buy as much house as you can get away with”-ista. But generally speaking, a house throws off a dividend of “a place to live” while more or less going up in salable value with inflation.

    A car is dead though. I don’t even bother tracking ours (though I used to when it was like 25% of my net worth)

    • retirebyforty July 17, 2013, 9:11 am

      It’s just easier for me to think of it as dead money. It’s not a huge part of our net worth anyway. If it was 50% of our net worth, it would be harder to think of it as money that is just sitting around.

  • Daisy @ Prairie Eco Thrifter July 17, 2013, 5:57 am

    I don’t count my car in my net worth calculation. I’m not going to sell it ever, so there’s no point. I don’t really look at my net worth all that often, but I do enjoy seeing it increase all the time!

  • Pension Retirement July 17, 2013, 9:16 am

    I guess it depends on whether you consider your house as a place to live or an investment. Equity in a house may just be the PV of a stream of rental payments, especially if housing doesn’t keep up with inflation. But I like the image of your housing investment throwing off a “place to live” dividend.

    • retirebyforty July 18, 2013, 8:53 am

      That’s true, but you can also rent out a room or take a reverse mortgage. I’m not planning to do either so I’m just hoping for keeping up with inflation.

  • Matt July 17, 2013, 10:38 am

    I try to count my rental property and primary residence equity as being after sales commissions, closing costs and taxes to give a more accurate picture as that is what I could liquidate it for so I feel that is the way to go.

    I like my rental properties, but I agree a brokerage account with stocks and other financial instruments is tough to beat for liquidity and passivity. Of course, after the run we have had over the last few years, it is hard not to think this.

    • retirebyforty July 18, 2013, 8:54 am

      Do you just take a certain percentage off? Maybe 20%? It’s a lot of calculation that I don’t have time to do.

      • Matt July 23, 2013, 11:28 am

        Well, it is pretty easy. You don’t have to be exact, but figure 5% broker commission plus another 2-3% in other selling costs to be conservative so say 8%. I live in Los Angeles and have owned my townhome since 1999, so I have a very large capital gain that I will owe some taxes on, so I have to figure in those costs as well.

  • what's next July 17, 2013, 10:44 am

    Kind off topic, but I have a retirement savings questions. The wife and I make around $190k per year combined. If we assume debt free, we have an emergency fund and max out our 401k, what should be the next step? Is there an article on this blog (or maybe another blog) that discusses this? We both have some money in Vanguard IRA’s which we rolled over from previous employer 401ks. Thanks for the help.

    • retirebyforty July 18, 2013, 8:58 am

      It’s in bits and pieces on this site. I’ll write a more comprehensive post next week.
      I’d go in this order.
      Roth IRA
      dividend stocks in a taxable account
      I bonds
      then other investments that you’d like to try – rentals, P2P lending, more stocks, more bonds, etc…
      I’ll write a detailed article next week.

  • Pretired Nick July 17, 2013, 10:49 am

    I have way too much buried in “dead money” right now. I try to think of a portion of that as income in the sense of giving me a place to live, but I only give it credit for what a reasonable rental would cost. I need to take another hard look at my net worth when I finish selling my fourplex (delayed AGAIN!).

    • retirebyforty July 18, 2013, 8:59 am

      Sorry to hear about the delay. I’m looking forward to reading the post.

  • Insourcelife July 17, 2013, 10:55 am

    I am always struggling with reconciling our current goal of paying off the big mortgage in the next 3 years with the ever increasing percentage of our net worth being tied up in the house. Every month that I make a large principal only payment that percentage is becoming bigger. To make myself feel better, I look at it as if the money I am tying up at least paying me back the interest rate of the mortgage. The rate is low but it’s guaranteed, which can’t be said for any other investments over the next 3 years. Once the mortgage is paid off I plan to start piling the spare cash into the index funds. I value the security that a paid off house provides for the family since the monthly expenses would get reduced by so much. But I’m also keeping an open mind about the possibility of downsizing and cashing out some of the equity converting “dead money” into an income producing asset.

    • retirebyforty July 18, 2013, 9:00 am

      You can also downsize and keep the house as a rental. It’s a good way to see if you’re cut out to be a landlord. 🙂
      I think you are doing great by paying off your house so quickly.

  • krantcents July 17, 2013, 11:38 am

    Although a periodic net worth calculation is important to measure your progress, I prefer to exclude my residence, furniture, personal items, collectibles, cars and I even exclude an investment in real estate. The reason I exclude those items is because they are not very liquid and I probably will not use them to fund my retirement. It is a much more conservative approach to a net worth calculation, but it works for me.

    • retirebyforty July 18, 2013, 9:01 am

      It’s good to be more conservative. Not everyone can afford to do that though.

  • No Waste July 18, 2013, 7:30 am

    Oh boy!

    A net worth post – I eat these things up like candy!

    Congratulations on your progress – I tend to exclude vehicles from my personal net worth as they highly illiquid. And even if I did sell them, I would need to replace them because I actually need them in my daily life.

  • Money Beagle July 18, 2013, 10:16 am

    I always love seeing the varying ways that people calculate their net worth. For us, I break things down into four categories: Home, Auto, Retirement, Current, where ‘current’ is sort of the breadbasket of everything that doesn’t fit into the other categories. One other big difference I see is that I don’t calculate the value of the kids 529 plans in our net worth. I figure that’s theirs 🙂

    • retirebyforty July 18, 2013, 2:08 pm

      Well, if he doesn’t go to college, it’ll be added to our travel fund. 🙂

  • Free Money Minute July 19, 2013, 3:39 am

    We have about 25% in dead money (house and cars), 50% in long term retirement and another 25% in near cash or cash. Looking to grow other semi-passive income like advertising income from website/blog activity. It is good to know where you stand as it means you have somewhat of a plan.

  • Rich Uncle EL July 19, 2013, 6:24 am

    Joe, I like the way you have your net worth set up. I agree with the dead money category of houses and cars, because until you sell them or rent them, they will always be a liability. Something that costs you money to maintain it is a liability. When it comes to my Net worth the majority of it is in retirement account, becasue I am still working on my school debt, I cannot grow my my investments to the level I desire. Good Post!

    • retirebyforty July 19, 2013, 8:43 am

      Our dead money will grow steadily too. We are paying extra into our home and hope to pay it off at some point. Can’t avoid it really…

  • The Passive Income Earner July 19, 2013, 8:53 am

    I am almost 60/40 between dead money and retirement. My passive income machine is 20 of the 40. I am paying down our mortgage fast though to take away from employment risk and free up that money to invest as we only have one income. (I constantly struggle between just focusing on investing since I could make more than interest on the mortgage – and unfortunately mortgage interest is NOT tax deductible in Canada)

    Layoffs have been an annual recurrence and I want the flexibility of home payment if I am laid off and my salary changes.

    I am however starting to focus mostly on income generating assets since dead money in a home doesn’t help really… My net worth will reach a million soon and most of the growth is from home appreciation in the Vancouver area. Same thing with vehicles, it’s a depreciating assets not worth keeping track of. Assets are assets but it’s only useful to list everything when you are disposing of everything …

    • retirebyforty July 19, 2013, 2:37 pm

      The home appreciating will give you a huge boost if you ever move to a cheaper area. Your income portfolio will ramp up really fast too once your house is paid off in a few years. Great job!

    • Arties Lionel Trains July 22, 2013, 1:31 pm

      I’m doing the exact same thing with the mortgage.

      I know the financial advisers would tell me to put the money in other places but I could finish the mortgage in less than 3 years (hopefully) and that’s my goal. I’m with you on the being out of work issue. I will feel much better once the mortgage is paid off. I will be able to ride out a layoff much better when the mortgage is paid off then if I’m still paying it. Everything else if free and clear with no other debt. The big issue for people here in the US is medical coverage.

      On a separate topic – How do you like Vancouver, I’ve heard it’s quite a nice place.

  • freebird July 19, 2013, 11:12 am

    I keep about 30% in retirement accounts, and about 34% in each of cash and taxable accounts. My “dead money” bucket is less than 2%. These days cash barely registers a pulse but I’m playing defense. My biggest mistake was expecting a longer duration bottom back in 2008 to 2009 so I was only a quarter of the way through my buy list when the sale abruptly ended. Ah well, next opportunity may be coming soon.

    • retirebyforty July 19, 2013, 2:40 pm

      I had more in cash recently too, but I jumped in at the last correcting. I hate being on the sideline. It’s easier for me to just ride the ups and downs. Having money on the side just bothers me.

  • Pat S July 19, 2013, 4:38 pm

    Lets not forget one of the most important factors in net worth. Your future earnings. Your value in the market. Education and skills are critical and completely separate from net worth, but can be a strong factor in ones ability to leave the work force earlier than others. A marketable skill set never goes out of style.

  • Arties Lionel Trains July 22, 2013, 1:18 pm

    I’d be interested to hear more about your online venture. What are the other online ventures and through what methods are you outsourcing? I’m always interested to hear from those not only doing it but doing it well. On the P2P — How many defaults have you had thus far?

    Related to the online income — My website is quite new and I have recently been seeing a bit more of a steady flow of visitors albeit really low right now. My targeted users are staying on OK but my search traffic is not.

    Any tips on how to retain new visitors a bit longer on the site? — Thanks!

    • retirebyforty July 22, 2013, 9:49 pm

      I just have a couple more blogs. I outsource all the writing and I just do the back end. They are not as successful as Retire by 40, but I didn’t expect them to be. At least they are making a little money.
      P2P – I had 35 defaults out of 615. Around 5%.
      Retain visitors? Write quality content and have an easy way to follow you. Email, twitter, and facebook works well for me.

      • Arties Lionel Trains July 24, 2013, 1:04 pm

        Well you must be doing something right if you are still making money and able to afford to outsource for the content.

        After I wrote my comment I did a review of my site and found it was pathetically slow for some reason which is likely to be part of the problem. Made some tweaks and it seems a bit better now. I’m thinking of changing the template, not 100% sure I like the one I’m using. My research indicates traffic will be slightly cyclical so I’m hoping to have a more substantial site by Xmas Season to attract more people.

        I’ve been working on Twitter but most traffic is coming from a related forum, although my search traffic isn’t bad – total traffic is still low though. I recently found a couple of SEO flaws I’m working on. Ideally I want to have about 10 sites up and running (all different kinds) and then loop around, re-evaluate, and beef them up as needed. I’m thinking that would prove to be the best ROI for me. I’m learning fast but there is still a LOT to learn and this is with a full time job. I think it would be fun though if doing this was my full time job, my creative mind has been more energized lately then it has been in awhile.

        Thanks for the reply – I’ll be watching/learning.

        • retirebyforty July 24, 2013, 1:40 pm

          It took 6 months before I started making money so it’s not an easy process. I think it will keep improving though so I’m hopeful.
          10 sites sounds like a lot of work. Good luck! I think I can probably do one more site and that’ll be it. Maybe some kind of niche site would be easier.

  • thepotatohead August 5, 2013, 2:25 pm

    I need to start making a dividend portfolio, been focusing on saving enough to max out my TSP/401k first, and then after that making a divi portfolio in a roth ira. Hopefully within the next 2 yrs I can start funneling a decent chunk into a roth ira, but i’m still paying off student loan and car debt, so that’s on the back burner for now.

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