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Personal Finance Score Calculation

bake578
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Personal Finance Score Calculation

Wed May 01, 2019 2:33 am
How are the components (Net Worth & Annual Spending) calculated?
Net Worth... it's showing negative for me, but this is not correct. Does the account type matter for this calculation?
Annual Spending... is this based on the last 12 months, or some type of forecast?

Thanks!
User avatar smankowski
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Hi,

Annual Spending is computing by adding all expenses from all accounts between the end of the previous month and one year before.
Net Worth is computing by adding all operation from all accounts except Assets and Other.
Regards.


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bake578
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Thanks for the quick response! I'm not I understand why Assets are excluded from the net worth calculation. When I have a mortgage loan for a car or house, I think it makes sense to allow the car/home value to offset the loan amount in the net worth calculation, make sense?
User avatar smankowski
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Hi,

The PFS is done to compute how many years you can live with the same style of life with the money you own.
This is why, Skrooge doesn't take into account your assets.

But, if I read some definition (https://www.investopedia.com/terms/n/networth.asp), I can see that assets should be considered...
I don't know what to do:
1- Stay as it is
2- Include all accounts in Net Worth
3- Add an option to let the user choose

What is you point of view?
Regards.


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User avatar smankowski
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After some discussion with some friends using Skrooge, I will include all account in the computation of the Net Worth.


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User avatar smankowski
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User avatar JesusM
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I missed this thread!

The problem I see with the annual spending calculation is what I mentioned in this other post. If you buy&sell many times in a year your annual spending will increase when actually it should not, because when you buy some shares actually you are transferring cash to assets, but the wealth remains the same.

It is the same logic with loans, the capital part of the loan repayment is not an expense, it is just a transfer from cash to reduce the debt.

So, someone conservative in regards of investment will have much higher PFS than someone else with the exact Net Worth and income but liking trading, simply because the calculated Annual Spending will be much higher for the second person.

 
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