Denominator Wealth

I track my spend rate as a rate [s/W] every month as part of a statistical control process.  That means I need a denominator. I've lost track of what the "official" literature has to say on this so I'll just describe what I do.  It's easy enough to say "use the balance from your brokerage accounts" but I think that's the wrong answer.  Not all financial wealth belongs in the denominator just like not all non-financial wealth is necessarily excluded. 

I keep an enhanced version of an actuarial balance sheet akin to what Ken Steiner recommends.  That means I have assets and liabilities and I also have "flow" items like capitalized SS PV and an estimate of a spend liability among other things. I also have what I might call mezzanine liabilities that are near term 5+ year big ticket spending like college for 3 kids. I could and should do this for LTC but haven't...yet.  So, when I want a spend rate, wealth in the denominator should reflect what I can spend and I call that "net monitizable wealth."  In practice, this means:

  1- Net financial wealth: including flow items in PV form but net of both soft and hard liabilities
  2- A slice of non-financial wealth that I could monetize if I needed to consume it
  3- If I can consume it someday, it's in, if I can't reasonably expect to, it's out.

For #1, the soft liabilities are mostly made up of the estimated PV of a Tier 1 college ed, books, travel, room n board for 2 kiddos (already had one go thru Stanford).  The hard liabilities are things like a stub of a mortgage and a rolling estimate of a tax liability and a working capital LOC I sometimes keep. The spend-liability estimate proper is left out for this exercise -- but not forgotten -- since this is a spend rate effort.

For #2 the only example I have -- other than maybe a couple watches, perhaps a little silver left over from grandparents and some other trivialities like some rugs and astrophotography gear -- is a portion of my house. Some direct private investments in business ventures, valued by a model, used to be in there but I now estimate their value, not to mention monetizability, at zero.  I raised three kids in my current home and I don't need my whole house.   I'd downsize in a heartbeat but only up to a point. I figure in an extreme situation I could ditch half the value and be fine.  In practice I make maybe 30% of my house available as "monetizable" for this exercise. And, in fact, on a recent real estate scouting trip to MT, that's about the differential I think I'll see when I move.