Logic behind including your primary house in net worth from a FIRE perspective?

"Net worth" has a standard definition defined by accounting, which includes home equity. But FIRE# is different from Net Worth. From FIRE perspective, Net Worth is less meaningful.

You'll get a bunch of different opinions here, but when I calculate my net worth I just look at it as if I were to liquidate everything all at once and just walk away. What would I walk away with? And that number would include selling my house at today's price and paying off whatever I owe on it.

Your net worth is the total value of all your assets. Your home is an asset. Just because you need a place to live doesn't mean it's not an asset with tangible value.

You could always liquidate it and down size, rent, etc...

The logic behind it is that you could sell the house for cash and rent thereafter. If you have a 500k home paid off, that’s part of your net worth because you could decide to sell and rent a smaller house or condo for example at 2k a month, and invest the rest. That 500k cash would produce interest in dividends that may even be able to cover the cost of rent.

I agree completely. Im curious to see other responses though.

A lot of people plan to sell their home when they reach fire and either rent in a LCOL area, travel, or cut ties to do something else. For planing purposes, factoring in home equity makes sense for calculating costs to do this.

Your house is part of your net worth because that is the definition of net worth ( assets less liabilities).

This doesn't mean you should necessarily include it in your fire plans unless you're planning to sell. Fire is more about liquid assets.

House is obviously included in your net worth, but FIRE calculations don't use net worth. They are based on income-producing assets, and your primary residence isn't one.

Because most people in a pinch could sell their house to provide themselves with some cashflow, assuming they aren't still deeply in debt over it, or you could borrow against equity, or simply downsize. I rent a two bedroom apartment for $300 a week. My parent's house would sell for an amount that would keep them housed in a place similar or slightly nicer than mine for 30+ years. I could sell my aquariums and car and keep myself housed for about three months.

I agree with you and have started deleting my primary residence from my fire total. Sure it’s nice to see a bigger number, but I feel it just adds noise. Maybe if it was 100% paid off, other wise not

I’ve seen this asked a few times and I will give my two cents here. Technically, as others have said, if you’re calculating net worth then definitionally include equity in your house.

Some people rent, some own. If you own, at some point your house is paid off and then you only need to cover insurance and property taxes, so you’ll need less income to retire.

If you rent, then that is just an ongoing liability for you to cover and you’ll need to plan accordingly.

In either case, just look at the assets you have from which to draw income (exclude primary residence here), and look at your expenses, and run the math.

For fire you will be living off of your invested net worth, aka whatever you have in the stock market (hopefully VTSAX). Like you say your house doesn’t matter in that bc you’ll have to replace it if you liquidate it.

Equity is an asset