He Said She Said – When To Write Down The Car Value

Today we’re bringing you another round of He Said/She Said. These posts are really your chance as readers to hear how discussions (and sometimes disagreements) play out when managing our lives with each other. For a look at some of the past He Said/She Said discussions – check ‘em out here.

What would this one be on the books for?

What would this one be on the books for?

The Q1 Car Challenge has commenced!  I’ve been biking to work without issues, and even biked to work through our own Florida version of the epic cold snap of last week where two mornings in a row my morning ride took place in 43 degree weather (brrr!*) before our temperatures got back to the 70’s.

Since we’re starting to really see the possibility of dropping down to one car, our language has changed from “if we sell the Jeep” to “when we sell the jeep”. And that’s where this conversation came from.

We list both of our cars as assets on our balance sheet – mostly because up until a year ago, we still had a loan against one and counting every asset that you have a liability against is one of our “rules for calculating net worth“. But the fact is, the cars are an ever shrinking part of our overall net worth, just 2.7% combined for both cars on last month’s balance sheet according to KBB.

Mr PoP doesn’t want us to feel pressured to get the KBB sales estimate on the Jeep (when we sell), so would like to see us write down the value of not only the Jeep, but both cars completely to zero on next month’s balance sheet. I like having them on there (well, at least as long as we still own them). Take a gander at both of our arguments and then cast your vote below…

He Said

We’re way better off just not counting the vehicles at all – it’s statistical noise at best, and an over-estimation of net worth at worse. If the vehicles are worth $15K right now that is about 2.4% of our net worth. At least half of the months in 2013 our net worth rose by more than 2.4%; at this point measuring the cars in that over all figure is almost a rounding error.

To make it worse, it is a rounding error that, if anything, encourages overestimation. I have serious doubts that the Jeep will fetch anywhere near its KBB value on the market, and don’t want to be caught short when the time comes to get rid of it. I think Mrs. PoP will bring up the “mark to market” argument, but this seems out of place here (or with any thinly traded asset class). By relying on the KBB, we aren’t really testing the market value of the asset on our books, we are using an estimated proxy value, based on averages across the US. True, if we sold the Jeep we would know the value of it, but we also wouldn’t have it any longer!

She Said

Occasionally Mr PoP will say something about how the car values are “just one more thing to keep track of”, but let’s get this straight. The amount of effort he puts into tracking our car values is precisely 0. I do it all, and have gotten in the habit of looking the values up on kbb.com when we renew our car insurance every 6 months. Each time it takes about 5 minutes, for a grand total of 10 minutes of my time each year. Hopefully that successfully removes “time” and “effort” from the argument here.

I think the best thing to do is to leave both cars on the books until the time that we sell. There are a couple reasons why.

  1. Consistency. If we take a write down now, we’ll mask the drop a little because we’re updating the value of the duplex this month, but when we sell, we’ll have a mysterious “other” cash infusion. It just makes tracking the net worth growth from month to month messy and inconsistent.
  2. I actually think there’s value in seeing a depreciating asset on our books, even if it only represents a small portion of our portfolio. While our real estate and retirement assets grew by leaps and bounds in 2013, the capital that sits in our driveway (and in our fancy new garage) did not. In fact, it decreased in value by 16%. Seeing this stagnant asset class month after month is a nice reminder that our vehicles cost us a lot more than just what we pay at the gas pump and I think revisiting that once a month when we go over the balance sheet is a valuable check-in.


Who would you agree with?  Cast your vote and explain below!


* Mock me if you want, but for the cold mornings I wore a dry wick turtleneck, UA compression warmth running tights, a drywick jacket, and my old crew boating jacket, a scarf, gloves, and two pair of socks.  It is very clear that I am a warm weather creature by nature – but I made it!  And as bundled up as I was, I was only cold for the first half mile of the ride.  =)

33 comments to He Said She Said – When To Write Down The Car Value

  • trudy

    That’s $16K. If that’s what they could realistically be sold for, that is not invisible money in my book. On the other hand, is it realistic?

    • Who knows? They’re the KBB values for our zipcode with what I think is a realistic description of the cars (fair for the jeep, good for my car). I don’t think we’re fooling ourselves by thinking they are in pristine condition (which I admittedly did with my Mini Cooper in the past).

  • Debbie M

    Net worth is a useless measure in a lot of ways. For example, it doesn’t tell me when I can retire if I refuse to sell the house and use the proceeds. But if you’re going to calculate it, you should include those items that are easy to include. Maybe the KBB estimate is off, but $0 is off by even more. And to me, $16K is real money. I even keep track of cars that are worth 1/10 that much. Even though I don’t expect to get rid of them until there’s an accident or something that brings the worth to zero (or $500 for scrap metal or whatever)–if I had to, there would be some value.

    Some people, for similar reasons, don’t want to keep track of their house value in their net worth calculation, even though houses are worth more than $16K. I always think those folks should keep two numbers: a net worth, and some other number that’s more useful to them.

    On the other hand, I’m certainly not keeping track of the worth of any of my other belongings, mostly because it’s too much trouble (and I suspect that the worth is basically zero to other people).

    So I say that since it’s easy to keep track, do so. And since you’ve been doing it, continue.

    • “Net worth is a useless measure in a lot of ways. For example, it doesn’t tell me when I can retire if I refuse to sell the house and use the proceeds.”

      Definitely agree. This actually hits part of what we’re going to be starting with our balance sheet update this month. We’ll still track the net worth, but we’re also going to start tracking our “retirement/financial independence assets”, which we think of anything we can draw down on, sell, or earn income from. I think this will end up being the more useful number for long term planning considering I don’t see moving anytime soon.

      • Now you are talking my language!

        A lot of personal finance blogs focus on Net Worth and while there is a correlation of net worth to being able to retire early, I believe that too much focus on Net worth can cause people to go down a rat hole…basically by buying and holding lots of assets that aren’t liquid and don’t produce income.. (classic cars, art, coins, etc).

        Our goal is to have a blend of assets for growth (individual stocks, 401k, etc) and a blend for income (real estate,dividend portfolio, private equity etc). Any other obscure assets are simply a hobby/necessity and relegated as such when I track how we are doing.
        Brian recently posted..Copper Peak Ski Flying – 2014 Winter Exhibition Delay – Woo Hoo!My Profile

        • Mama PoP

          I agree. As someone who is in the final stages of my career (wow, that sounds like a disease!) and actively trying figure out when to push the “R” button, I know that it’s important to look at the actual usable assets. The trouble is that Papa PoP and I don’t know for sure what lifestyle we will want!

          • That sounds like a great disease to have :) One way of measuring when to push the big “R” button is to determine the opportunity cost of working and if the incremental dollars you are saving from working will truly alter your lifestyle in retirement.

            For arguments sake, let’s assume that for every additional dollar you save, you will only be allowed to draw 4% on that…indefinitely. Let’s also assume that you are able to save 10k a year and over the next 10 yrs you save 100k. Well at the end of that time period, you have only increased your lifestyle in retirement by 4k annually (depending on what you are already working with…this might be a lot of money or it might simply be inconsequential).

            So the opportunity cost of working for another 10yrs for an incremental 4k might not be worth it.

            Clearly my example above is overly simplified and ignores a ton of variables, but I hope it at least demonstrates a different way of looking at your problem :)
            Brian recently posted..Copper Peak Ski Flying – 2014 Winter Exhibition Delay – Woo Hoo!My Profile

          • Mama PoP

            Hi Brian,

            Thanks for your post. I need all of the help I can get on making this decision, and I will certainly try to figure out my opportunity cost. Since my semester starts next week, I have just returned to the tundra where I teach. It’s snowing and frigid here and I am sorely missing my Florida sunny skies and warm weather. That alone is enough to make retirement very appealing!

  • You might as well keep them both on the balance sheet. Sure it’s highly illiquid, but you do plan on selling it someday, so stay consistent. I actually don’t have my car on my balance sheet simply because I could probably only get $3k for it, and I plan to drive it into extinction. So I’ll never see any of that value come back to my bank account, except perhaps from the junker.
    Cash Rebel recently posted..Proof that practice is more important than talentMy Profile

  • This is a classic argument, and I’m happy that you posted about it! I’m taking the Mrs. PoP side on this one, mainly for reason #2. I think it’s a great exercise to actively monitor the decreasing value. It serves as a great reminder that although a car can be counted as an asset, it’s never a worthy investment (disregarding vintage/classic automobiles and special cases).

  • We include our cars in our net worth, mostly because if we really needed to sell them, we could. (In the case of our Jeep, we did.) I break out all our assets that way, in part, because I like to know approximately what I could net (even if the estimate is optimistic/pessimistic…we just do our best with it). Got to side with Mrs. Pop on this one.
    Done by Forty recently posted..The Lottery: You Can’t Win If You Don’t PlayMy Profile

  • Anne

    Compromise #3: Keep the Jeep on the books so you when you see it there isn’t a “random cash infusion”, but write down the car you’re keeping to $0.

    I don’t count my car (no loan against it) in my NW because I think of it like my couch. Could I sell it and put that $ in the bank? Sure, but I need it to get to work (or sit on after work), so it’s property I intend to use until it is no longer usable rather than an asset.

    • Mama PoP

      Anne, I like the way you think. A car that you use and will need to continue to use is more like a couch than an asset! Since I am currently having fits tracking down random income in last year’s Mint records, I think the PoPs should keep the Jeep on the books until it is gone.

    • Does your vote for Compromise #3 change if the car that we’re keeping isn’t necessarily our “forever car”? Mr PoP’s love of fast cars doesn’t seem to be waning, so I’m not going to be terribly shocked if we trade up (down?) to a faster (albeit older) car at some point.

      • Anne

        If you don’t plan to keep it “forever”, I think I’d keep it on the books. If you may sell it for more than you’d buy a replacement then I’d keep it on the books again to avoid the random cash infusion, but if you think you’ll spend more it’s good to have an approximate value of it so you can better estimate the cost of upgrading to the faster car. Then again, the “trade in” value could get some people to spend more on the faster car, but I doubt you two would fall to that trap.

        And thanks Mama Pop! My mint weakness is cash. I don’t withdraw it often, but when I do I’m horrible about categorizing it.

      • Mama PoP

        I believe that there is no such thing as a forever car! They are just a necessity like shoes. I think that the best plan is to always be able to pay cash for a replacement whether it is faster, bluer, longer, or uglier. Sometimes you can’t control when you will need to replace the one that you are using.

        As far as Mint goes, we use a lot of cash and it is totally uncategorized. I gave up on that a while ago! My Mint problem is that I am showing $34K of extra income for 2013 and I don’t know where it came from. I need spend some quality time on Mint and figure it out, obviously!

  • I don’t include my car in my net worth, but I also plan on driving it into the ground so it’s probably going to be worth less than 5k when all is said and done…if I’m lucky.
    Tonya@Budget and the Beach recently posted..Imbalance and Lifestyle InflationMy Profile

  • And hopefully with all those repairs you made you’ll get to keep it for a while!

  • I think you should list it in the net worth calculation because it is an asset. I guess you could argue that if you list cars, then you should list clothes, dishes, jewelry, etc, and I do agree that those could be assets, but it would be too difficult to find a somewhat accurate value for those. Also, things are only worth what people are willing to buy. You can almost always find a buyer for a vehicle, but not your other possessions. I think my autographed John Grisham books are worth a mint, but I’d be hard pressed to find someone who might pay me what I think they are worth. KBB takes that out of play. You might make more or less than that value, but at least you have a guideline.
    Kim@Eyesonthedollar recently posted..Investing Your Health Savings Account in the Stock MarketMy Profile

    • Mama PoP

      Kim, your point about the other “assets” is exactly why I am going to take our cars out of Mint. Papa PoP has an extensive (read expensive) collection that he is very happy with and could certainly sell for a mint (ok, a small mint, but still some bucks). However, since we don’t intend to liquidate the collection, I don’t consider them important to our financial calculations. Ditto the cars. I put them into Mint in the beginning and I like that they add a bit to our numbers, but it is really bogus if I look at them as an asset for practical purposes.

      Mrs. PoP, I am looking forward to seeing how your chart your investment/retirement assets as separate from the net worth. Much more effective, I think!

  • spiffi

    Both cars exist, and if you were suddenly forced to liquidate everything you own, you would get some cash for the cars. Thus they have a nonzero asset value.

    Writing them down to a lower value than kbb is up to you – here I think the compromise of nominal amounts of effort (checking kbb) vs more realistic evaluation isn’t really worth the extra effort.

    And when you do sell the jeep, I do think it makes sense that the money you get will map to the value of the sold asset so that you don’t suddenly have a random infusion of cash. At that time if you sell it for less than you had it on the books, you can write off the “loss”.

  • To be completely honest with you, I don’t think it makes much material difference which way you go. I voted to keep them simply because that’s the way we do it. I figure that keeping a conservative estimate is more accurate than not keeping anything. But when you’re talking about such a small percentage of your net worth, what’s going to be the material effect on your life either way?

    In any case, nice work moving towards one car! I’m spending A LOT more time working from home these days and the thought has definitely crossed my mind. We’re not quite stable enough in this current situation to pull the trigger, but it’s certainly a possibility down the line.
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  • I’m with you, Mrs. PoP, but that’s probably because we desperately need to count every bit of asset in order to not be too traumatized by our current net worth picture. :-)
    Laurie @thefrugalfarmer recently posted..Is 2014 Your Last Chance to Get Out of Debt?My Profile

  • I definitely agree with Mrs. Pop on this one, for those exact reasons. I do the same thing for my vehicle for consistency and for reminding me of the very real depreciation costs.
    This Life On Purpose recently posted..50 Reasons to ExerciseMy Profile

  • I don’t count my car in my net worth at all. I occasionally look on KBB for fun to see what it’s worth, but don’t count it. So basically, when I bought the car, my net worth took a decent hit and will do so again the next time I buy a car. I don’t really feel like checking on KBB values very often and the likelihood of me selling my car is reasonably low. If I did sell it, I suppose it would be an influx of cash. I’m not really that concerned with it when at this point, the car is about 3% of my net worth and growing smaller by the month.
    Leigh recently posted..2013 In ReviewMy Profile

  • I keep our car at -0- even though the KBB value is around $11k. I hate seeing it depreciate each month so I just leave it off completely. My NW would be a little less pathetic with it though. Seriously, only a little less pathetic…
    Erin @ Grad Money Matters recently posted..Financial Carnival for Young AdultsMy Profile

  • CincyCat

    I am the sole “other” vote (so far). Why not compromise & use a straight-line depreciation model for both cars? That way, the calendar dictates when they are written down to zero, and if you eventually sell for a price higher than that year’s “value” then the excess is gravy. In my opinion, cars (or other personal property) shouldn’t be included in Net Worth in the same fashion as real property. I would think that potential buyers are unlikely to be comparing used Jeeps for sale in your area in the same way they would compare home prices. Just my $0.02… :)

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