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.