At some point within the past couple of years, I became a millionaire.
There was no party, no celebration. In fact, it was clearly a non-event, considering I have no idea when it might have happened. If you’ve been tracking my financial progress monthly with me, you may be a little confused. After all, my December 2010 update listed my net worth as only $538,000. I’m happy with the progress I’ve made throughout the past decade, starting from a net worth below zero, but my December 2010 total is a bit shy of $1,000,000.
So where do I get the impression that I’ve been a millionaire for some time? It’s all in the way I calculate my net worth.
A full calculation of someone’s net worth includes the value of everything they own: a house, a car, electronic equipment, and jewelery, for example. Except for the bigger items, those that could be sold if necessary to have more money in the bank, it doesn’t make much sense to include the value of your stuff. If your purpose is to track your financial progress over time, there is not a lot of information that you can get from including the value of your computers or televisions in your net worth. There are many things I don’t include in my monthly net worth calculation for that reason, such as my coin collection or musical instruments, or even more abstract financial concepts like an accrued tax liability.
I also haven’t been including my business in my net worth calculations. The value is just too hard to pin down. Also, I don’t include a business value for the sake of consistency. When I started tracking my finances, I had no business to include. My calculation has remained the same since then. If I really needed to know my financial worth, I would be required to include some legitimate valuation of my business.
There are a lot of methods of determining the valuation of a business. I won’t go into the calculation options here, nor will I speculate on the financial value of Consumerism Commentary. I will say that looking at the present value of the projected income, the business would be valued high enough that I would be considered at least a millionaire.
This is only on paper. I’m not going to change the way I live and my approach to my finances. There are a few things to keep in mind. A millionaire means much less today than it did when the word was coined. Inflation is cruel. Also, someone may not consider himself a millionaire unless he had $1 million in more liquid form — not a in the value of a house or a business. Having $1 million to invest is different than having a good portion of that value locked into assets or representing a future income stream that, in a worst-case scenario, could disappear.
I didn’t write this article to brag about my net worth or to pat myself on the back; it’s just a statement that there are a few ways of looking at your finances, and certain labels can be meaningless. Becoming a millionaire was never a goal. I don’t believe in using financial targets or milestones as goals because the important idea or guiding force in a life is not the money or your net worth, but what you do with your life.
I’ll stick to calculating my net worth the same way I have been, by not including a speculative value on my business.
Photo: Rojer
Published or updated January 27, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Luke Landes founded Consumerism Commentary in 2003 and has been building online communities since 1990. Luke, also known as Flexo, has contributed to PC World Magazine, US News, Forbes, and other publications. 
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{ 18 comments… read them below or add one }
Well, congratulations in any case! :)
I always use concrete numbers. I never include my cars, but I include musical instruments because they’re insured for a certain value. Everything else, just not worth including.
Nice job – I agree about not including the business (except for the cash it spins off which you no doubt roll over into other investments?). I’d never include cars or any “things” even if they’re insured. If you have to pay just to own/take care of them, that doesn’t sound like much of an asset to me (expenditures and gains would all just cancel out anyway).
You hit on an important point–a million-dollar net worth really only matters if those assets are generating cash flow like consumerismcommentary is.
Congrats! I hope you continue climbing the wealth ladder :)
Congrats, and its great to hear that you hold your personal goals as the endgame rather than a number.
Nice! Can you lend me five bucks? And by “lend” I mean “give”. LOL
I think your net worth calculation is the way to go. Similar approach I use.
There are two reasons for a net worth calculation. Bankers use it as part of their credit analysis. The other is as a way of measuring progress. Your choice of excluding certain assets is a more conservative way to calculate net worth. It makes the measurement more meaningful to you. Congratultions!
I think the Gov’t should send you a card! Now that they will tax you at your death in NJ lol
Congrats! I think the last comment in your post was the best. It is important to live your life in a way that makes you happy, and not just increases your net worth.
Congratulations!
No matter how you calculate it, great job
Interesting thoughts on Net Worth. If my business was as successful as yours, I don’t think I would include it either. I do include my house, but if my liquid position ever get over the million dollar hurdle, I’ll probably drop my primary residence from the equation. Now if I had rental property… that’s a different story.
you are where many of us want to be, congratulations! you should take pride in that you got there doing what you love and by helping so many people on their own path.
Isn’t there a commonly used rule of thumb to estimate the value of a small business or a website? Like a percentage of the annual revenues?
Yes, there is. To put it simply, you project revenue and expenses into the future, and then discount the total amount back to present value. This is one of the three common methods for valuing a business. Also, an asset approach can be used, which is simply valuing a business’s assets (basically a liquidation value). There’s a market approach, but I’m less familiar with that one.
Well first off, congrats?
I actually have heard this from other “millionaires.” It’s really not a different feeling reaching that level. To them it’s just a normal process of smart saving and good earning.