Household Net Worth: Everything Held, Everything Owed

A net worth calculator adds up what a household holds, subtracts everything owed, and returns what is left. The calculator carries two totals rather than one: everything, and everything with a statement behind it. The second is smaller, and on most sheets the gap between them is wider than anybody expects.

Two things need saying before the first figure is entered. The first is that this calculator rates nothing: no line saying a good figure sits above some number, no colour on any scale, no comparison against what other households hold. None of that is a property of the arithmetic. The tool prints a number and refuses to grade it, and that refusal is the design rather than a gap in it.

The second thing matters more. A household may build this and get a figure with a minus sign in front of it when what is owed comes to more than what is held, or build it twice a year apart and find the second figure lower. Both results are ordinary, both are reached by households every day, and neither is a verdict on anybody. The number is a positionWhat is true on a date. A position carries no account of how it came about and no record of what anybody decided. on a date. A position is not a score.

What does this working tool compute?

One subtraction, then a second subtraction, then a sort. The useful part is not the arithmetic at all. Knowing which figure goes on which line, and where each of those figures is read from, is the harder half.

Net worthEverything held less everything owed. Net simply means after the subtraction has been done. is everything held less everything owed. The subtraction belongs to the household sheet, and this tool assumes every bit of it: the two sides, the lines that belong on each, and the difference between a figure somebody issued and a figure the household produced itself. The tool adds a third column the sheet did not carry, and the third column is the entire reason it exists separately.

The third column answers one question about every held line: how quickly does this become money that can be spent. Not what it is worth. How fast it turns up. Adding that column to an already familiar sheet turns a statement of what a household is worth into a statement about what it could actually do next week, and the two readings rarely resemble each other.

Here is the shape of the tool with the Bhosale household, an invented family, loaded into it. Meghna Bhosale is salaried at Sahyadri Freight Services Private Limited, Ashok Bhosale runs a tailoring counter in the market lane, and Ira Bhosale is at school. The reading is at 31 March of the second year.

What goes on the held side, and where is each figure read from?

Six lines, and the tool asks the same question about each: which document does this number come off. Locating the document is the whole of the field work, and a figure carried in somebody's head is the one that turns out to be wrong later.

The salary account is read off the balance the bank shows on the date of the reading and not on a date near it, Rs 10,567/- at 31 March. The buffer savings account is read the same way, Rs 31,320/-, and it stays a separate line because the two accounts are used for different things by the people running them.

The recurring deposit is read off the deposit record, and the figure wanted is the amount paid in so far rather than what it will be worth at maturity: Rs 64,000/-, being Rs 40,000/- carried in and Rs 24,000/- paid across the year. Interest is credited at maturity, so it is not in this figure.

The public provident fund is read off the account statement for the scheme, Rs 84,000/-. No institution issues a figure for the gold or the two-wheeler, so both are the household's own estimateA figure written at home. No document sits behind it and nobody else would stand behind it., at Rs 1,40,000/- and Rs 38,000/-. Household goods sit at nil by a decision taken when the sheet was first built. The tool does not argue with either estimate, it marks them, and that marking is what makes a second total possible.

What goes on the owed side, and which figure does the tool ask for?

Three lines, and the field note on each is a location rather than an explanation. The card is read off the statement balance, Rs 48,594/-. The pay-later plan is read off the plan schedule, and the figure wanted is what has not yet been paid, Rs 8,000/-. The Rs 15,000/- borrowed from Ashok Bhosale's brother has no document at all, so it is whatever both people would say if asked separately, and the tool asks for that question to actually be put.

Where a loan is still running, the line the tool wants is the settlement figureWhat a lender says would close a debt today, quoted by the lender rather than worked out by adding up instalments. the lender quotes, found on the statement or by asking for it. Asking the lender is a locating instruction rather than a new idea. The two-wheeler loan reached the end of its schedule in January, so the Bhosale household has no loan running at 31 March and the owed side carries three lines rather than four.

Every figure on this side is somebody else's number, and that is the quiet difference between the two sides of this sheet. A debt is an agreement with a second party who keeps its own record. So the held side carries two lines the household wrote itself and the owed side carries none. If the two disagree about a balance, the tool has nothing to say about who is right. The tool only insists that the figure entered is the one the other side is working from.

What does the first subtraction return?

Rs 3,67,887/- held less Rs 71,594/- owed is Rs 2,96,293/-. The difference is the first output and the one everybody means by net worth, and the tool prints it without a word of comment attached.

The exclusions matter as much. Net worth is not income. Income measures a different thing across a period rather than on a date. Net worth is not what the household could spend either, and the third column below is where that gap gets measured. And because the tool has never seen another household, net worth is no comparison with anybody.

Three households can produce three very different figures from this identical arithmetic, and the tool reports all three the same way, in the same typeface, with no mark against any of them. A net worth figure is a reading, in the way a weight or a temperature is a reading, and the instrument that took it has no opinion about the answer.

Why does the tool return a second total as well?

Because two of the six held lines were written by the household itself, and a total that mixes those with figures issued by an institution hides which is which. So the tool computes the subtraction again, using only the lines somebody else would stand behind.

The statement-backedA figure somebody else issued and would stand behind if asked. A bank balance is one. An estimate of what the gold would fetch is not. held lines are the salary account, the buffer savings account, the recurring deposit and the provident fund: Rs 10,567/- plus Rs 31,320/- plus Rs 64,000/- plus Rs 84,000/- is Rs 1,89,887/-. All three lines on the owed side are somebody else's numbers already, and the owed side therefore does not change. Rs 1,89,887/- less Rs 71,594/- is Rs 1,18,293/-.

Rs 2,96,293/- and Rs 1,18,293/- are the same household on the same evening, and the Rs 1,78,000/- between them is exactly the gold and the two-wheeler. The distance is not a discrepancy to be reconciled away. The second figure is 39.9 per cent of the first. The lines valued at home tend to be the large memorable ones, so on most household sheets the gap is wider than the person building it expects.

Why is neither of the two totals called the real one?

Because each answers a slightly different question and both are legitimate. Rs 2,96,293/- answers what this household has, counting the things it has and would sell if it came to that. Rs 1,18,293/- answers what it has that nobody could argue about. No third figure stands behind those two to arbitrate.

Think of a household packing to move house and counting the vessels, the cupboard and the two-wheeler. Everything in the lorry is real, and not one item has a price until somebody offers one. Gold at least has a published price anybody can look up. The two-wheeler has no such comfort: it is worth whatever one buyer says on one day.

The tool does the subtraction twice for one reason: carrying both totals stops either of them being misread. A household that only ever sees Rs 2,96,293/- starts to feel that Rs 2,96,293/- is available. One that only ever sees Rs 1,18,293/- has quietly written off Rs 1,78,000/- of real things. Two numbers, printed together, with the gap named underneath, and no verdict on either.

What is the third column for?

Everything so far is a familiar sheet, computed twice. The part that is new comes next. Against every held line the tool records its reachabilityHow quickly a holding becomes money that can actually be spent. Reachability is a property of the line, not of the amount written beside it., in three words rather than a number, and then sorts the sheet by that column instead of by size.

Three settings, chosen to match the speed at which trouble asks for money rather than to be tidy. Same dayReachable without asking anybody for permission and without breaking anything: the money is already money. means the money is already money and moving it needs nobody's agreement. Inside a month means about four weeks, and getting there involves at least a form, a counter, or somebody else deciding. Longer means it needs a buyer, a scheme rule or a queue, and none of those runs on a household clock.

For this household the column reads: same day, same day, inside a month, longer, longer, longer. The two accounts are money already, Rs 41,887/- between them. The recurring deposit becomes money inside a month if it is broken before its date, and what breaking it involves is a question for the household's own bank. The provident fund runs on the scheme rules, the gold needs a buyer, and the two-wheeler needs a buyer and is also the thing the household travels on.

Now sort the sheet by that column, tallest band at the slow end, and look at the shape. Rs 41,887/- arrives the same day, another Rs 64,000/- could arrive inside a month, and Rs 2,62,000/- sits beyond that. The slow end holds 71.2 per cent of everything this household has.

What does the third column change about the way the sheet reads?

The third column changes the order, and the order is the message. Sorted by size, this sheet opens with gold at Rs 1,40,000/-, then the provident fund at Rs 84,000/-, then the deposit at Rs 64,000/-. The two bank accounts, the only lines that behave like money, come fifth and sixth.

Sorted by reachability it turns almost exactly upside down. The salary account goes first, the buffer follows, the deposit keeps the middle, and the three lines that led by size fall to the bottom. Five of the six lines move, four of them by three places or more, and no figure on the sheet has changed at all.

A household under pressure does not read its sheet from the top by size. A school term due on Monday cannot be paid with a two-wheeler on Monday, so the household reads its sheet in the order the third column puts it in. The sort by size is the sheet at rest; the sort by reachability is the sheet on the day it gets used.

Two settings are worth comparing. With the control at the far right, the bar fills the outline while the net worth plate does not twitch: the household is no richer there, it has simply been given unlimited time. Dragged back to same day, the bar shrinks again. The whole distance the bar travels is time, and none of it is money.

How is a change between two years read?

Build the tool twice a year apart and it will report a difference. The Bhosale household stood at Rs 3,17,540/- at the end of its first year and Rs 2,96,293/- at the end of its second, so the change is minus Rs 21,247/-.

The tool prints the movements and not only the change, so before anybody reads anything into the fall, here is what moved. The two-wheeler line fell from Rs 46,000/- to Rs 38,000/-, and the fall is depreciationA thing being worth less than it was because it is older. Nothing has to happen for it. Time is enough. and nothing else: the vehicle is a year older and both figures are the household's own estimates. And the owed side grew by Rs 42,194/-, from Rs 29,400/- to Rs 71,594/-, even though the two-wheeler loan was cleared during the year.

Against that, three things pushed the other way. Clearing the loan removed Rs 29,400/- from the owed side, Rs 24,000/- went into the recurring deposit, and the two bank accounts ended Rs 4,947/- higher between them, being Rs 3,807/- in the salary account and Rs 1,140/- of interest on the buffer, untouched once all year. Rs 58,347/- of movements pushed the figure up and Rs 79,594/- pushed it down, and the difference is exactly the Rs 21,247/- fall.

One movement catches people out and deserves its own sentence. A pay-later plan of Rs 8,000/- appeared on the owed side for a tablet bought for Ira Bhosale late in the year, and no matching line appeared on the held side. Household goods sit at nil on this sheet by a decision taken when it was first built. So buying a real thing lowers net worth by the whole of what is still owed on it. The arithmetic is not in error. A valuation decision taken a year earlier is doing the work.

What does this tool refuse to do?

Four refusals, and each has a reason behind it rather than a shrug.

The tool does not rate the figure. Whether any figure is enough turns on what comes in, who leans on it and what is coming next, and the tool has seen none of the three. So there is no good level of net worth to state. A mark printed on a scale would stop describing the household and start grading it.

The tool does not compute months of cover: the scale on the panel divides by Rs 42,770/- to give a sense of size and nothing more, and building that denominator properly belongs to a separate tool. The tool measures a position that already exists and has no opinion about the next one, so it does not say where anything should be held. And it does not explain the sheet itself. The two sides, the lines that belong on each, and the lines sitting at nil by choice all belong to the household balance sheet, the sheet this tool loads and adds a column to.

What should a household take away from two totals and a column?

Three things, and not one is a number to reach.

The first is that the sheet is worth building at all, once a year, from documents rather than from memory. Most of the difficulty is clerical, and the clerical part is where the surprises live: an account nobody had opened in months, a debt whose figure the other side states differently.

The second is to keep both totals and never let one of them stand alone. Rs 2,96,293/- and Rs 1,18,293/-, written side by side with Rs 1,78,000/- named underneath as gold and a vehicle. Either figure on its own is a way of being wrong slowly.

The third is the reachability column, the reason this tool exists at all. Fill in how fast each line becomes money, sort the sheet by that column instead of by size, and read the top of it. The top of that sorted sheet is what a difficult Monday can actually reach. Here the answer is Rs 41,887/-, against a net worth of Rs 2,96,293/-, and there is nothing wrong with either number. The whole craft is remembering which question was asked.

The Bhosale household, Meghna Bhosale, Ashok Bhosale, Ira Bhosale, Sahyadri Freight Services Private Limited and the three households plotted on the unmarked axis are invented.
Educational material. Not advice on any investment, tax, budget or market position.