I got me an edumacation!

Do you have any money?  Can you make your bills this month or are things a little tight?  Are you wealthy or poor?  Does a bank think you are a good risk?  Do you have good credit?  What is your net worth?  What are you worth?  (Ok, so that one isn't a money question)  The strange thing is that though these questions seem to all aim at the same thing, they are actually vastly different questions.

Net Worth is what you’d have left over if you sold everything you own.  I don’t think anyone has asked for this information on a credit application and it’s not considered in coming up with my credit score.  And it has little to do with how much money is in my purse (a buck two eighty) and really has little to do with anything… although it’s important information if you want Colombia to let you adopt their (poor, hungry, orphan) kids.

So here’s the process.  On a spread sheet make a list of everything you own that is worth something.  The house is usually at the top of the list unless you rent.  The autos, the furniture, the other assets.  The bead collection and the piano.  All of it.  Estimate the values of each item.  How much is your house worth?  (Easy if you are a renter.)  And fill in figures for the autos - www.kbb.com is a good resource for that.  You’ll have to know the year, make, model, miles and features of your ride.  Add it all up.  Add in the balance on each bank account you have, add in your investments (what’s left of them after the stock market quits tap dancin on the total today at 5 pm)  Add that list up.   Yeah, just remember this isn’t YOUR worth we’re looking at… this is about the junk you own.  All that stuff that would be gone if Katrina visited in the night.

Start a new column and start listing the liabilities.  How much do you owe to the bank who lets you live in their house?  How much on the autos?  Any credit card debt?  Any revolving credit?  Add it all up.  Yeah, we are not makin any judgments here, just doin the math.  If you are young and just bought your first house, ouch!  Old and nearly paid off that sucker?  Score!

So, which is bigger?  The plus pile or the minus pile?  Well, shuck my corn!  My PLUS side is BIGGER!  *Does a happy dance!*  I CAN HAZ ADOPTION!  Whooo Hoooo!

Here’s the irony… owning two houses would seem like a liability since I owe an astronomical amount of money to Janet the Banker.  On the other hand, since I owe less than the appraised value on either house, it puts me in the black.  (We got house B for considerably less than its appraised value!)  And when I took house A off the spreadsheet, my net worth went DOWN.  Ok, that seems really counter intuitive, right?  Well to me at least.  Owning two houses means it’s harder to make my commitments, but it makes my net worth higher.  Is that some twisted mojo or what?!

And this is why this economic situation has been such a bitch to so many folks.  My net worth hinges mostly on the estimated value of my home (which in recent years has departed to some degree from an appraised value since most of those lovely folk had a few years of collective insanity that we are all paying for now.)  Now I’m not going to say this VERY loudly, for the purposes of my math, I’m using appraisal values from sometime this year, not today.  (Markets have had a downward trend lately so the longer ago my appraisal - the better my math will look)  So where this gets really tricky is when someone just buys a house and is just starting to pay the loan, unless they made a hefty down payment, there is little wiggle room in the net worth department.  If the market shifts and that individual owes more than the house is actually worth, that creates a negative net worth… but it doesn’t mean they don’t have money in their pockets and it doesn’t necessarily mean they can’t pay their bills.  It can mean that, but then again it might not.

Here’s where I think this gets really funny.  Let’s say Joe the Plumber lives in the house he grew up in, so what if he shares the place with a six bear hunting dogs.  His pappy paid $9,452 for that place back in the day and ol Joe inherited that baby when he turned 48 (along with the ancester to all these dogs running around here.)  It needs a coat of paint and “Extreme Home Makeover” would certainly rip that crap to the landfill, but it’s a house with a warm fireplace and it’s paid for.  And it’s got a few acres out back with some nice views of the valley where he played as a child.  He’s paid off his five year old Ford F150 duely and doesn’t have much else but doesn’t care.  He thinks the “Stock Market” is the place you’d go to buy a coupla cows for the pasture out back.  And he pays his bar tab at the end of each month, so that’s not much of a liability depending on which day you do the math.  And as long as he doesn’t hit the credit cards and doesn’t have a girl friend, well, his net worth looks pretty darn good. 

On the other hand, Sarah the Soccer Mom may live in a big house in the ‘burbs.  Let’s say she bought her McMansion a year or so ago at the height of the market, but now two homes in her neighborhood have been foreclosed on and so the value of all the houses in her neighborhood have gone through the floor.  Even though Sarah and handsome husband make plenty of money and have a little left over at the end of the month to go to Neiman Marcus and shop for clothing… she could have a negative net worth.  And if they experienced a medical meltdown, or one of them lost their job, or they wanted to borrow some money to buy matching snowmobiles, well… then it might start to matter.   Appearances mean nothing, ability to earn money or borrow money is not the issue.  Net worth is simply a way to estimate what would happen if Joe’s and Sarah’s assets sold at auction tomorrow, all the bills were paid up… what would the figure be on the check the auctioneer handed them or would have have his hand out?  That’s net worth.  And though Joe and Sarah may lead very different lives, you can't tell by looking which one has the higher net worth. 

And I have come to the conclusion that net worth means very little to me.  It says nothing of my character, or kindness or my relationship to the world I live in.  And it has nothing to do with our ability to be parents.  It has nothing to do with staring down two home mortgages when you only want one house.  It’s deceptive because the numbers can change considerably based on many things beyond my control.  And it really doesn’t have that much to do with whether or not I pay my bills on time.  And yet it is the difference between being able to adopt, or not.

I’m happy!  I can haz offspring!  SCORE!