Assessing one's financial worth

[Grant]

this thread is merely of "academic" discussion only, and comes out of a dinner conversation during which far too much wine was consumed.

be that as it may, one often hears " most south africans are millionaires, or multi millionaires".
the basis of that assertion is most own homes, which in the overwhelming majority are in excess of R1m in value - some may be subject to loan agreements, others already fully settled.
so for the simplified purpose of discussion, lets assume all homes are not tied to bonds, loans etc, all are fully paid for and unencumbered.

lets assume i live in a home with a value of R10m (again, not subject to any financial agreements), and beyond my home i only hold cash, shares or other unencumbered investments to a maximum value of R500k for example (below the R1m benchmark).

my contention is that the primary residence of a family should not really be taken into account, as it is an "essential" without which one cannot really survive and function properly - somewhat like 2 patients in icu, one is on life support the other is not - remove life support from the one and survival becomes near impossible.

of course the counter argument is that i could sell my R10m home and purchase another for R5m and then have R5m in cash.
my response is that we generally purchase the best home for our family we are able to afford - affordability of the home being key, we may often dip into any available investments etc to increase the affordability of that home.

this all goes to people who may have bought a home decades ago, and is now worth a few million, but they have very little in terms of investments or cash.
the same applies to those who may have suddenly inherited a home worth millions, but again have very little in terms of available cash or investments.
these two groups are often referred to as "asset rich, cash poor" - could they really be classed as millionaires, when in reality they may not even have the means to go out and buy a new stove or fridge in the morning.

should the value of our primary residence really be included when contemplating millionaire or not ?

 

[RedViking]

If you own the home, no loan, yes that will be part of your net worth. As you can sell it.

If you still have a loan it is the home minus what you owe on it.

Same for other assets.

A lot of people are millionaires in debt.

Many are just millionaires. Who cares if you worked for it or not.

But today being a millionaire is not considered so amazing compared to 30 years ago.

Also you would probably want to look at dollars and not rands. Pounds even better.

So probably around R30 000 000 net worth would make you a "millionaire" today going by my 30% maths pass rate.

Who wants to be a 30 Millionaire.


I should probably read the rest of the paragraphs now...

Yes, primary residence should be included, because us fools renting ain't got no nothing.

 

[NR7]

Assets minus debts = net worth. Properties are assets.

Yes there are a lot of millionaires in SA because the rand is so weak.
Are there many dollar millionaires? No, R18m+ net worth is much harder to achieve.

 

[Tomtomtom]

should the value of our primary residence really be included when contemplating millionaire or not ?

Yes for purposes of simple net worth include primary residence value, minus any outstanding amounts owing.

There is definitely a qualitative difference between having X value in cash and having the same in property, and there are times this really matters more than overall net worth. But I don't think there's a term for it other than "liquidity".

 

[cguy]

Yeah, a person with a big house and little cash could always become a renter with a whole lot of cash, given enough time for the sale. So, really, the only difference between the two is liquidity.

As for the “millionaire” classification, it’s not really meant for local currency. I mean, what would the significance be in Japan or South Korea (R13k is 1M Yuan)?

Some dictionaries define millionaire as units of local currency, and others specify it as dollars/pounds/euros, since that is the rough semantic bar for which it is typically used. Even that is somewhat eroded due to inflation.

The new nomenclature I see is HNWI, VHNWI and UHNWI.

 

[W@P]

Just remember SARS wants to thank you at the end, after all your hard work and sacrifices, when you kick the bucket, in becoming a multi-millionaire.

They will celebrate the successful life you had by taking 20-25% of your shiiit, depending on how much you had.

Ieally you should be piss poor on paper.

 

[Grant]

Interesting comments !
all valid opinions

 

[Tongs of Destiny]

everything is an asset, as you can sell it... everything depreciates in South Africa

if you sell everything today even your clothes so you are standing naked, how much cash have your got = how much you are worth on planet earth

any other amount is just make believe and a fugazi

 

[Icarium]

People can and do sell properties to get themselves out of financial difficulties (or just downsize to free up cash for other investments) all the time. Trying to argue that it shouldn't count towards your net worth makes little sense.

As for arguing that a R10m house is an *essential*, well... the less said the better.

Just remember SARS wants to thank you at the end, after all your hard work and sacrifices, when you kick the bucket, in becoming a multi-millionaire.

They will celebrate the successful life you had by taking 20-25% of your shiiit, depending on how much you had.

Ieally you should be piss poor on paper.

If you have enough in assets to worry about estate duty (R3.5+m?) and you're too stupid to do estate planning, that's on you.

 

[rh1]

Accountants will probably value you based on your:

1. Net present value of future net cash flows (Income/inflows less expenses/outflows).

2. Net asset value (current vale of assets less your liabilities (I am in slight negative or zero value, depending)

Probably the best way is when courts determine damages to pay out for a person life and use your future potential earnings etc.

 

[W@P]

People can and do sell properties to get themselves out of financial difficulties (or just downsize to free up cash for other investments) all the time. Trying to argue that it shouldn't count towards your net worth makes little sense.

As for arguing that a R10m house is an *essential*, well... the less said the better.



If you have enough in assets to worry about estate duty (R3.5+m?) and you're too stupid to do estate planning, that's on you.

The estate in question was planned well enough. Could it have been planned better? Yes.
And don't even bring companies into the picture. I cannot say much about this, as I did not have to deal with any of this with the executor. All the companies in question are owned by a family trust. So this falls outside their scope of work.

I am selling a couple of properties atm. 2 have already been sold out of the estate, finalised, and transferred. I am getting rid of all the properties in our combined portfolios. I am done with the admin and all the baggage that comes with it. Except for the holiday homes, keeping them.
Even though my father planned, moved, and grew the majority of the stuff in the trust, he still had a few things in his personal name. That is the kicker I am waiting on. It all adds up quick.

I have almost nothing to my name. I also nominated the trust as beneficiary for all my personal investments, like RAs, LAs, and life insurance.

Just yesterday I had to hand in his hunting rifle to be dealer-stocked at my local firearm dealer. 10min later, they are requesting a value on the gun.
I had to take pictures of the most worthless kak in order for them to apply values to for the finalization to draft the L&D account.

Estate planning is crucial. Sort your shiit out.