Thursday, July 5, 2007

Fun with Negative Net Worth

I was tooling around with my net worth calculations, and something occurred to me.

I use three "net worth" metrics to track my financial progress:
  • Net Worth: Total assets (retirement and non-retirement savings, home, and car) minus total debts (including mortgage)

  • Net Investable Assets (NIA): Total financial assets (retirement and non-retirement savings) minus total non-mortgage debts

  • Net Liquid Assets (NLA): Total non-retirement savings minus total non-mortgage debts
The first two are currently positive, since I've been contributing to RSPs since I graduated in 2001, but my NLA is significantly negative. This is because virtually all of my savings to this point have been in RSPs, so I have no truly "liquid" savings.

I always find negative numbers interesting when it comes to calculating percentage change. During the month of May, I increased my NLA by $2,306.85. Since my starting point was negative, this technically represents a negative percentage change. That is,

$2,306.85 / ($35,298.09) = (6.54%)

It's clear that this is actually a positive change, so it's trivial to convert this to a 6.54% increase, but an interesting question is raised if I consider doubling my NLA. Technically, this would mean decreasing my NLA to ($70,596.18), which is clearly not what I'm looking for. However, another way to look at "doubling" is in terms of a 100% increase. So, in a way, I will have doubled my NLA when it hits $0, or when my non-retirement savings are equal to my non-mortgage debts.


Of course, doesn't this then mean that any increase in NLA after I hit the "break-even" point will represent an infinite increase?

Yes, I'm a geek.

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