Everyone knows that their net worth is a very important metric when it comes to planning for retirement. After all, knowing how much you own in assets can help you decide how much money to save, what to sell off, and so on. Your net worth is considered your most important number that you need to know for retirement, besides your age and your credit score. However, Ted Bauman warns that it is easier than you think to miscalculate your net worth.
The first thing to do is understand the difference between value and price. Price is simply what something is selling for in the market right now. It is definite. Value is more subjective, and it depends on your assessment of the worth of an item. Something may be of value to you, but I may find no value in it.
Generally, price follows value. If something is of value to most people, it will go up in price. However, price and value do not always correlate.
Take fidget spinners, for example. A while ago they were expensive, because everyone wanted them. However, they soon went down in price. Does that mean that we were wrong about their inherent value? No, it just means that it never had an inherent value, and it was only considered of value because so many kids wanted one at the moment. Learn more at Seeking Alpha about Ted Bauman
In other words, time is a big deciding factor when it comes to how value affects price. Just as it applied to fidget spinners, so does it apply to assets such as your house. The value of your house is dependent on a lot of things that may change over time. For example, the neighborhood around your house may change, and you can not control that. If the neighborhood gets less safe, then the value of your home will not be the same in a decade or two. Another thing that may cause your home to go down in value would be if people simply start earning less. If young people can no longer afford to buy new homes, then you will have fewer buyers. Without that many people to sell to, the price of your home will go down.
According to Ted Bauman, countless studies have shown that young people are doing worse, not better. They are making less money, and the average value of their net worth is only going down. This does not bode well if your retirement plan is contingent on you selling your home. Follow Ted Bauman at tumblr.com
Ted Bauman is the editor of The Bauman Letter.
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