In a previous post about how to calculate your net worth, I didn’t go into detail about the different types of net worth that exist and are important to consider. After publishing our in-house calculator, I received a lot of requests and questions regarding this concept. I’ve provided all the necessary details in this post 🙂
Global or classic Net Worth
This first category is the most common and the most global. It is the one presented in the previous post. It is composed of all your assets, no matter what their nature. It is also this value that is often tracked in the calculators that can be found on the internet or on the various blogs covering the subject. As a general rule, it is this value that most people are interested in, as it is representative of their overall financial situation.
FI Net Worth
The FI is the amount of money you can (should) count towards your goal of being financially independent (FI). This is the amount of money you need to reach to be financially independent, the so-called Fuck-You Number. If your goal is to be financially independent one day, you have probably calculated the amount of money you need to save (your Fuck-You Number). Once you know this amount, you would like to know how many years it will take you to reach it and this calculation is based on your savings rate.
However, if you rely only on the overall net worth, your calculation will be biased. Indeed, once you are financially independent, you must respect a withdrawal rule (4% rule for example), and you will use the elements of this wealth to support your expenses.
So, the FI net worth should be composed only of assets that can be used to cover your expenses once you retire (very early in the case of a FIRE goal). In my case, for example, I would exclude my real estate, as it would not pay for any expenses. If you bought a car (not leased), it would be included in your assets, but I would also exclude it from the FI net worth.
Retirement accounts such as the 2nd pillar should be considered, as this is money that you will own in retirement. However, you have to be careful with this pillar, because if you retire very early at 40, the amount available in your 2nd pillar will not be available before your legal retirement age. The only exception is if you want to leave Switzerland permanently to live in another country outside the European Union. If you plan to live in Spain, your mandatory pension fund will simply be transferred to a Spanish fund. You will only be able to withdraw the mandatory part. Here is a very complete but understandable post on the second pillar [french].
I do not count the 1st pillar (AVS/AI), because it is already excluded from the calculation of the global wealth. As a reminder, here is what I wrote in the post “How to calculate your net worth“.
1st pillar (AVS/AI) : this is the social security of Switzerland. As it is not possible to know how much you will receive at retirement with this pillar, I do not include it in the calculation of the assets. In some countries, this amount is a lump sum. In this case, I think I will include it in the calculation.
Liquid Net Worth
The “liquid” version is simply the global version minus all the assets that cannot be sold quickly and easily, such as real estate. To know if an asset is liquid, I ask myself the following questions:
- Can I sell this asset quickly and easily (in a few days on a local advertisement website for example)?
- Can this asset be turned into cash in my bank account?
The following is a non-exhaustive list of liquid assets:
- The money in my bank accounts
- Money in a bank or home physical safe
- Stock market shares
- Precious metals
It can be interesting to follow the evolution of the net liquid assets in case you need a large sum of money quickly.
If you’re already calculating your overall net worth, that’s a very good point! It’s a must-have tool for anyone concerned about their personal finances. My home calculator allows me to track this net worth very easily. It is possible that it will be improved to be able to follow the evolution of these different types of net worth as well.