Personal Finance

Reader Question: Are Clothes a Part of Net Worth?

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Last updated on July 23, 2019 Comments: 9

A reader recently posed this question to Consumerism Commentary:

Are clothes a part of net worth?

In May, I wrote about how to calculate your net worth. Technically, your net worth includes the value of everything you own subtracted by everything you owe. Your wardrobe, shoes, furniture, coin collection, car(s) if you have one, house(s) if you have one or more, are all included in the own category, called “assets.” Your loans, mortgages, credit card balnces, and immediate tax liability if your assets are liquidated fall into the owe category, called “liabilities.”

Your teenage children, while most likely a burden, should not be considered liabilities nor assets — at least not in this country.

Now there’s probably little value in tracking the value of your clothing or shoes from month to month or year to year. Including them in your calculation doesn’t add much useful information if you’re just trying to track your financial progress. For a meaningful calculation, leave them out — but then don’t call your total at the bottom your “net worth,” at least not to other people. Call it whatever you want on your own, but the term, “net worth” has a singular definition among most people and can cause confusion if you use that term to describe your customized calculation.

This doesn’t answer the question of how to include your clothing in a net worth calculation. What you are trying to determine is the price you clothes would fetch if you had to sell them, which is likely an amount well shy of how much you paid. A best guess would probably suffice, and I would hope that this is a situation no one would have to face.

This reminds me, I should revise my future monthly financial reports just so it’s clear I have other assets and liabilities that I don’t include for my own purposes.

Here are some more articles from bloggers about the net worth calculation.

How to Calculate Your Net Worth, here at Consumerism Commentary. “Since the purpose of the calculation is’t to compare yourself with others, it doesn’t matter what you choose to include as long as you’re consistent each month, and the numbers are meaningful to you.”

Considering Changes to How I Calculate Net Worth, at My Money Blog. “When tracking one’s net worth, whether publicly or privately, I don’t think there is any one “correct” way to do it. People should measure it however they like in order to achieve useful information out of it.”

What’s the Best Way to Calculate Net Worth?, at Free Money Finance. “Personally, I calculate my net worth including the value of my house. But I also know that it’s not a liquid asset that I could convert to cash quickly if I needed to.”

Net Worth vs. Net Investable Assets, at Five Cent Nickel. “I have to admit that I’ve never been a big fan of net worth in its purest form… That is, how much money you’d have if you liquidated all of your investment accounts, withdrew all of your funds from the bank, sold everything that you own that has any value whatsoever, paid off all your debts, and then threw the remainder in a giant pile.”

How to Calculate Your Net Worth, at The Simple Dollar. “Take your total assets and subtract from that your total debt. The resulting number is your net worth.”

Net Worth, Net Investable Assets, and Net Liquid Assets, at Analyzing Wealth. “All of your assets (cash, investments, property, etc.) minus all of your liabilities (loans, revolving debt, etc.). This is a great measurement because it paints the whole picture– how much MONEY do I have? If I sold it all and moved to South Dakota, how much would I be taking with me?”

Article comments

Anonymous says:

Agreed. We’ll call “net worth” the difference of assets and liabilities. Let’s call anything else “adjusted net worth”.

A good reason for attempting to make the jump from ANW to NW is that making an inventory of all of your assets can be valuable for insurance purposes as well. If you go room to room (to closet) cataloging everything you own, including serial numbers and estimated market value, you can plug that right into your net worth calculation. Should the unthinkable happen and you have to file an insurance claim, you’ll wish you had that inventory and it’s much harder to remember everything after the fact.

Anonymous says:

Kurt hit is dead on with his comment. If you want to correctly value any asset in calculating your net worth, the standard to use is the net proceeds you will realize after the sale. As for leaving items out of your calculation and still calling the result “net worth” that can be valid. Never do that with any of your liabilities. However, I own stuff that I either can’t sell because it is worthless to anyone else, or that isn’t worth enough to count individually. I estimate the value of those items at $0 and count them. I might actually get more for them in a yard sale, but it isn’t worth tracking their value.

In the end, net worth is an estimate, not an exact value. The reason is obvious enough. You are estimating what you could sell your assets for. I choose to estimate the value of some of the junk I have around the house at $0. If I get more for it, assuming I sell it, that’s a bonus. I’ll value the cash at face value in that case.

Anonymous says:

Your clothes are worth what someone else will pay for them. If it’s eBay, you have to ship them. If it’s a yard sale, you’d best give people a deal or it goes into your house. If it’s through a donation, you need to keep careful records and wait for your taxes the following year.

A guess? Maybe 5% to 10% of retail if they’re used, more if they’re not.

Anonymous says:

I have never liked the term Net Worth, Asset Net Worth sounds better since someone’s value is truly greater than their assets. The calculation should include the value of all assets that you own, less any debts. It is personal preference to take tax out of the calculation for assets such as IRAs, but most planners that I am aware of do not. Some financial planning software has graphs that will track side-by-side tax deferred and taxed assets. For the purpose of a personal comprehensive financial plan, this calculation serves as a good way to track overall wealth growth progress. I don’t think it matters a lot if clothing is included.

Anonymous says:

Yep, it’s part of your net worth.

However, figuring your true, complete, literal net worth is not a useful exercise since it doesn’t really tell you anything that really helps you meet any of your goals.

I like to figure my net worth — but I’m only going to make the grossest estimate of the value of my “stuff”. I’ll be more accurate on house and cars since they are “big ticket” and do have real resale value.

What you really want to focus on is your “investable worth”: the assets you own that can make you money. That’s the value that best tells you when you can retire or have otherwise met your financial goals.

Anonymous says:

Fur coats and other special clothing could be included, but regular clothes? I don’t know if they would have much value.

If we had to sell all our clothes right now, it would probably end up in a garage sale fetching a dollar per item. I think ‘designer’ clothes would end up in the same bin as the regular clothes. After you buy them new, do used brand name clothes really have more value over other clothing?

Anonymous says:

Anything you can sell should be included. The key here is that clothes markets are less liquid and involve higher frictional losses than, say, the stock market. I’d argue you should “value” your house at your net proceeds from selling, not what you ask, what the seller pays, or anything else. It might stink to think that when you pay $200k for a house you have just reduced your net worth by $12k (sellers fees) but that’s deal you made (assuming you paid market price and could sell it for what you paid). Clothes are similar in that when you buy a $15 Target shirt (sorry, that’s my type of shirt, you likely pay more) you’ve just reduced your net worth by $10 or so (is $5 fair for a resale value? Maybe less?).

Anonymous says:

Hello. Thank you for reminding people use the term “net worth� only when uncustomized, so that we have a common language. Also, remember to count taxes:

“If liquidating your IRA now would incur a 35% income-tax rate plus 10% penalty, then the accurate net worth of your IRA now is about half of what your account statements say.��my 6/9 article.

Thank you.

Anonymous says:

I think clothes should be included in your net worth. Everything on your balance sheet is what you own and what you owe, if you have a lot of designer clothes or expensive fur coats, they’d be included – the same as jewelry.

As for valuing the clothes, couldn’t you just do like a 2-4 year depreciation on the value from the date bought? That would reflect the reduction in value from year to year to eventually 0, in which case you’d give them to the salvation army or good will anyway.