Presumably because the point of having n years’ worth of income is that if you need to, you can live off it for n years; whereas if much of that is tied up in your home then some of those n years are only available if you sell your home, which is a pretty drastic step to have to take. And because if your surviving-for-n-years plan involves selling the place where you live and using all that money, your measure of “income” needs to include any extra rent you’d be having to pay.
No. With decent assent management you can oversee the time delay to access each of the items you own. Cash is good, but not all the reserve needs to be in cash. In a country with a good capital market you can borrow against your house. In severe case where you are unable to acquire income for month that is a decent thing to do. I find it strange to just ignore the biggest asset one owns completely.
Of course this only makes sense if the house/appartment is actually paid for. If you still have a mortgage on it then the house is worth about (house—mortgage—transaction costs) for your reserve.
Yes, since you can borrow with your house as collateral its emergency value (so to speak) isn’t zero, but it also doesn’t equal its sale value. So the right thing would be something between “net worth” and “net worth not counting primary residence”. (Other illiquid assets also need treating specially, for the same reasons.)
Yes, that. The omission was glaring to me because I’m in a situation where net worth is pretty comfortable overall, but discounting my apartment and looking only at my liquid assets and income, well, it’s a different picture.
I wonder what other blind spots exist in standard financial advice. I’m unlikely to happen to fall in the one and only category that reveals a blind spot.
It is not a blind spot. The problem with financial advice is how to tailor it to the receiver. The idea of treating the house as special is good for everyone that otherwise would start to spend on it. For someone who one might call a real rational acting financial sound person it is possible to analyze his situation wholy.
I used to find it weird when people start cutting up their credit cards. It makes sense if you other wise use them, but if you do not, then you can just store them in a nice place and decide to not use them.
Why?
Presumably because the point of having n years’ worth of income is that if you need to, you can live off it for n years; whereas if much of that is tied up in your home then some of those n years are only available if you sell your home, which is a pretty drastic step to have to take. And because if your surviving-for-n-years plan involves selling the place where you live and using all that money, your measure of “income” needs to include any extra rent you’d be having to pay.
No. With decent assent management you can oversee the time delay to access each of the items you own. Cash is good, but not all the reserve needs to be in cash. In a country with a good capital market you can borrow against your house. In severe case where you are unable to acquire income for month that is a decent thing to do. I find it strange to just ignore the biggest asset one owns completely.
Of course this only makes sense if the house/appartment is actually paid for. If you still have a mortgage on it then the house is worth about (house—mortgage—transaction costs) for your reserve.
Yes, since you can borrow with your house as collateral its emergency value (so to speak) isn’t zero, but it also doesn’t equal its sale value. So the right thing would be something between “net worth” and “net worth not counting primary residence”. (Other illiquid assets also need treating specially, for the same reasons.)
Yes, that. The omission was glaring to me because I’m in a situation where net worth is pretty comfortable overall, but discounting my apartment and looking only at my liquid assets and income, well, it’s a different picture.
I wonder what other blind spots exist in standard financial advice. I’m unlikely to happen to fall in the one and only category that reveals a blind spot.
It is not a blind spot. The problem with financial advice is how to tailor it to the receiver. The idea of treating the house as special is good for everyone that otherwise would start to spend on it. For someone who one might call a real rational acting financial sound person it is possible to analyze his situation wholy.
I used to find it weird when people start cutting up their credit cards. It makes sense if you other wise use them, but if you do not, then you can just store them in a nice place and decide to not use them.