How Much of Net Worth Should Be in Your Home

Homes are the single most valuable asset many people own, yet homes cost money to buy and maintain. Living in a highly desirable home is alluring since it has a huge effect on lifestyle. As a result, a large percentage of net worth can get tied up in a home without considering overall financial goals.

How much net worth should be in your home? The standard rule of thumb is to have is 20-30% of net worth allocated to your home. The key, however, is to balance overall financial goals with desired lifestyle. Factors to consider are the time frame for building wealth, the amount needed for retirement funding, estimated future investment returns, and lifestyle priorities and expenses.

The best percentage of net worth in your home goes way beyond an exact rule of thumb that supposedly applies to everyone.

In this post, I’ll address why the percentage of net worth to have in your home is so important in building wealth with examples to demonstrate this point.

Importance of Home Value to Net Worth

It’s easy to loose site of how much net worth should really go toward a home because our homes are, well, very personal and often not thought of in terms of acheiving financial goals.

Also, many people consider how much net worth to put into a home at the time of purchase, but forget this important metric needs to be tracked as your home value and your net worth change over time.

The amount of net worth allocated to a home can make or break the achievement of your financial goals since homes typically make up such a large, and often disproportion percentage of net worth.

It’s simple: The more net worth that’s allocated to your home, the less net worth available to invest in other assets – whether those assets are for generating income or building wealth.

But sometimes, under certain circumstances, homes can actually enhance wealth building efforts as addressed later in this post.

Formula for Home to Net Worth Percentage

As with most financial questions, again, the percentage of net worth that should be in your home is simply not a one size fits all formula. While we can use financial planning standards, such as 20% to 30% as a guide, both homes and financial goals are very unique and intertwined. 

There has been a trend in recent years to allocate a very small percentage of net worth toward a home. Several millennials became known for living happily in tiny houses while cutting expenses to the bone to create financial independence faster, for example.

These frugal individuals clarified their financial and lifestyle priorities, then thought and lived outside the box to achieve their own definition of financial independence.

Like me, you may not want to go to that extreme. I tend to go a little outside of the box, however, because doing so is sometimes warranted to reach financial goals.

Still, the percentage of net worth to have in your home is a factor of several big picture considerations as you’ll see below.

Have a look at these, then check out the 3 examples given below of couples that are evaluating a change in the percent of net worth allocated toward their home.

How to reitre when you want

Is Your Home an Asset?

Many people argue that their home is personal, so buying or owning shouldn’t be considered in financial or retirement planning. I’ve seen too many people get into serious financial trouble during major real estate corrections related to economic cycles over the past few decades to agree with that.

And I’ve seen others build wealth through strategic home ownership.

Since homes are often where people have much of their net worth tied up from both an equity as well as an expense perspective, they should definitely be looked at as a major asset.

Factors Affecting The Percentage of Net Worth to Have in Your Home

The percentage of net worth in your home should be based on a personal wealth plan that addresses the following factors below.

Net Worth Liquidity

Individuals with a high level of liquidity can allocate a larger percentage of their net worth toward their home.

This is because homes are highly illiquid. If a large percentage of your net worth is in your home, and hard financial times should occur, you can become insolvent. This is the nightmare of all investors.

On the other hand, if you have a high net worth allocation toward liquid assets such as stocks and/or liquid mutual funds or ETFs, these can be sold to raise cash almost immediately should the need arise.

Home and Investing Balance

The whole financial independence journey is really about setting priorities. We all make or have a certain amount of money, and we get to choose how to use that money.

For many people, a home isn’t a high priority. In this case, a lesser amount of net worth should be allocated toward a home even though this might defy popular financial planning advice. On the other hand, if certain home attributes are top priorities for you and/or your spouse, then it makes sense to adjust finances elsewhere.

Financial planning is very personal, and it’s always about priorities and trade offs.

How Close Financial Independence Is

It makes sense to consider how close you are to achieving financial independence in deciding how much net worth to allocate toward a home.

If you’re close to reaching your financial goals, which, for most investors that take my investing course, is saving enough to retire,  a higher percentage of net worth can be allocated toward a home.

Or if you’ve already reached financial independence, and don’t think additional wealth building is a priority, then you may want to really indulge and allocate a high percent of net worth in your home.

If you’re far from financial independence, it is more important to allocate more net worth into assets likely to increase in price while you own them. This could possibly be a home, but consider the other factors below because home appreciation is cyclical and often arduously slow.

When You Want to Retire

From a practical perspective, the amount of time remaining for your wealth to compound before retirement affects the percent of net worth you’ll need to allocate toward investing vs a home.

If you have two decades before retiring, you have much more time to make money and increase your earning power. You also have more time for your investments to grow, and thus need a smaller amount invested to reach your goals. This means you can have a higher percentage of net worth in your home if you choose.

Alternatively, if you have only a few years before retirement, your income will likely be ending soon. You also have little time for wealth to compound before retiring. In this case, you’ll need more of your net worth allocated to assets that build wealth and compound, so you should probably choose to have less net worth tied up in your home.

Economic and Market Cycles

Believe it or not, real estate, economic, and stock market cycles are some of the biggest influences on how much of your net worth should be in your home.

This is important for two reasons.

  1. The economy affects the value of real estate which affects the value of your home. The last thing you want is a huge percentage of your net worth tied up in a depleting (and often expensive) asset, especially during broad real estate market corrections and/or recessions.
  2. The economy affects stock market cycles which affect the amount your money will grow (or shrink) over extended time frames so you may need more net worth allocated to investing vs a home.
  3. Most investment portfolios have assets that increase in value during bad financial times to offset assets that decline in value during such times. With homes, there is no such offsetting asset so net worth can take it a big hit during bad economic times.

Capitalizing on Real Estate Cycles

When deciding how much net worth to allocate to a home purchase, it makes sense to take a macro perspective with the following question: Are homes in the area I’m considering overpriced or underpriced relative to historical prices?

This is because buying an underpriced home can be an excellent way to build wealth.

It’s counterintuitive; years of rising home prices give us the feeling we’ll never be able to afford a home if we don’t rush in and buy during a seller’s market.

Economics eventually change, however, and buyers’ markets return. Purchasing a home during a buyer’s market allows you to get more home for less money; often a lot more home for your money.

If you’re looking to buy a home, it may make sense to allocate a little more net worth to a home purchase during a buyer’s market following a real estate correction.

This is because there is a greater chance your home value will increase if you buy an asset below market value, thereby boosting your net worth. 

On the other hand, if homes are overvalued, and have been for years, you could be allocating a high percent of net worth toward an asset positioned to decline in value. Could it be time to sell and lower the amount of net worth you have allocated to your home?

While a home is a home, and not a liquid investment, there is no reason not to apply smart financial principles toward home buying and selling decisions since, again, homes are such a major part of your finances.

And it just makes sense to buy assets for good value whenever possible. This is a core financial principle.

I thought I was the only one appreciating this idea until I heard a Wealthion YouTube interview with financial advisor Lance Roberts. Lance regularly talks about how he sold his Houston home during a period of highly inflated home prices with a plan to rent until home prices correct.


Finally, how much you enjoy living in your home vs how much of your net worth you want to allocate for wealth building opportunities is really the bottom line.

The goal of investing and wealth accumulation is to allow us to live how we want. Your home is so much a part of your life.

Beyond the actual dwelling, there is the convenience and time element of being near work, family, or activities.

There is the connection and memories you have with your home.

But all this must be weighed against financial peace. The reality is that financial peace is a function of having the investment income and retirement savings needed to fund a comfortable lifestyle, for life, probably at least as much as your home’s cherished dynamics.

Age and Net Worth Allocated to Home

Note that it is common for older investors to have a very high net worth allocation in their home since they’re more likely to have owned their home for a long time than a younger person. All the factors presented above increase in importance when this is the case.

Financing Your Home

The amount of financing on your home plays an important role here. A high net worth allocation along with a large amount of financing can be a dangerous combination.

Many retirees pay off their homes before retirement to avoid having to make payments while retired, however. They feel like this addresses the fact that they have a high percentage of net worth tied up in their home.

Even without financing, it can be a poor decision to have too much net worth allocated to your home, especially in retirement. This is because homes don’t pay the bills; homes create bills.

Examples of Net Worth Home Allocations

You’ll want to consider progress toward overall financial goals and life factors in deciding how much net worth to allocate to a home as addressed previously. Let’s do that with a few examples of couples evaluating how much net worth should be in their home. This is an evaluation that needs to take place when buying a home as well as when periodically assessing progress toward financial goals to see if a change needs to be made; having too much net worth in your home can slip up on you after years of gradual appreciation.

Retiring at 60 with High Percent of Net Worth in Home

Let’s look at the net worth of Sara and Joe, a couple, both 50, with a net worth of $1,000,000.

They have $500,000 invested in a typical buy and hold portfolio in stocks, bonds, and money market funds following an asset allocation deemed appropriate for their age and acceptable risk.

Sara and Joe feel comfortable planning for a 4% annual return over the next decade before they retire.

(Read my post  How to Understand Your Investments for more explanation about this.)

Sara and Joe would really like to retire at 60 so they can spend some time traveling before getting older.

Fortunately, their home has increased in value over the years. They think they could sell it for $500,000 after all costs. Therefore, they have 50 percent of net worth in their home.

Sara and Joe both feel 50 percent is too high a percent of net worth to have in their home since they have a ways to go before reaching their financial goals before retirement.

Let’s do some math to see if they do in fact need to reduce the amount of net worth tied up in their home since math provides reliable answers. 

To retire comfortably in their current lifestyle, they have decided they need investments of $1,500,000 to retire in planning to make traditional retirement withdrawals of 4%.

Sara and Joe are saving $1,000 a month and putting it into their investment portfolio.

By entering this information into the Retire Certain Early Retirement Calculator we see their investments will grow to about $941,000 by their desired retirement age of 60 based on their information and return assumptions.


Keep in mind that while math doesn’t lie, retirement calculators are based on best “guesstimates”, as all future projection calculators are. Their investments could grow by 8% a year or -2% a year or some other amount. Based on history and the current market environment, however, 4% seems like an optimistic but reasonable estimated future investment return to Sara and Joe given their asset allocation.

By simply questioning the percentage of net worth that should be in their home, Sara and Joe have opened a world of possibilities to reach their retirement savings goals which they are not otherwise going to reach unless they make some changes as evidenced above.

Let’s explore the options for Sara and Joe to reach BOTH their lifestyle and financial goals.

Reducing the percentage of net worth allocated to their home seems like a good area to investigate potential change since home equity is a generous figure on their net worth statement.

Downsizing Their Home

Sara and Joe could downsize their home. In doing so, they could allocate 20% of their net worth toward their home now that their kids are grown and they no longer need so much space. This would allow them to invest the proceeds from the sale of their home, for starters.

Such a move could have several other positive effects on their net worth by increasing investment capital available to compound in the years before retirement while reducing home related expenses such as taxes, utilities, and maintenance. 

Increase Retirement Savings

Sara and Joe had been saving $1,000 a month. After some research, they see the monthly amount they’re adding to their retirement savings could be increased to $2,000 simply by lowering home expenses with a smaller home in a lower cost area. The neighborhood they’re considering is closer to both Sara and Joe’s offices, freeing up time as well as lowering transportation costs.

Low Percentage of Net Worth in Home

In this example let’s look at Ted and Alice. They are also 50 years old and want to retire at 60 with $1,500,000 in investments to use for making traditional retirement withdrawals

Their net worth is $1,300,000. Their percentage of home value to net worth is 23% and they are evaluating if they should lower the allocation.

After some research, they see they could get about $300,000 in net proceeds from selling their home. 

They have a buy and hold $1,000,000 retirement savings account in stocks and defensive assets following the All Weather Portfolio model. They are comfortable with a 4% estimated projected return.

Plus, like Sara and Joe, they can add $1,000 a month to their retirement savings account.

Entering this information into the Retire Certain Early Retirement Calculator, we see that they will have about $1,717,000 in their investment portfolio when they want to retire at age 60.

Ted and Alice are reaching their goals to retire at age 60 with $1,500,000 in savings. This is a simple and traditional model that will work IF their investment account has a 4% return after fees and taxes.

They choose to keep their current home based on this potential outcome.

40 Percent of Net Worth in Home with Alternative Retirement Plan

Be forewarned. This example is outside of traditional financial planning, but there are even some financial advisors and thousands of advanced investors who use this approach.

Let’s look at Bob and Carol in this next example. They have a net worth of $1,000,000. In their net worth statement, they have valued their home at $400,000.

They have $600,000 in their investment portfolio which is heavily invested in stocks with minimal cash and bonds.

This means that 40% of their net worth is in their home. Bob and Carol were upset when they looked at the numbers because they really want to keep their home. Therefore, they took the following steps after some serious research and education.

Bob and Carol spend a few hours a month managing their portfolio focused on income investing.

When they see a good opportunity to do so, they call out of the money covered calls on dividend stocks.

This allows them to earn about 12% a year in income alone from their stock investments, about 5% from dividends (stocks, MLPs and REITs), and another 7% from out of the money covered call strategies.

They plan to continue this covered call strategy after retiring while realizing that it may not work during the occasional bear market every few years. Plus, they have some of their investments in cash and bonds generating income.

Given the bond and cash allocation, Bob and Carol have decided to plan on earning 9% investment income instead of 12%. The income will come primarily from stock dividends and selling covered calls.

While they also get some increase in value from their stocks, they won’t take that into consideration since some years that probably won’t happen, and covered calls reduce capital gains.

Plus, they will have to pay taxes on the covered call income that is outside of their IRA.

Since they plan to have the 12% income from their dividend and covered call strategy in the stock portion of their portfolio, they feel confident they can retire on retirement savings of $800,000 since investment income will pay for much of their lifestyle expenses, along with income from two real estate rental properties and social security eventually.

They are also adding $1,000 a month to their investment account from job income until planned retirement at age 60.

By entering Bob and Carol’s data into the Retire Certain Early Retirement Calculator using the lower 9% return (from income alone which is reinvested), we see their retirement savings should grow to almost $1,833,000 by the time they retire at 60.

They decided to leave the amount of net worth allocated to their home at 50% even though it is a high allocation because they feel confident in their advanced investing skills to produce the savings and income they need.

Summary – Net Worth Percentage for Home

We all love hard and fast rules and formulas. They require less work on our part.

But as you can see, there is no neat little formula that tells you how much of your net worth should be in your home.

There are only priorities, financial goals, potential strategies, reasonable planning, and math. We could also add the current and impending economic environment to that list of factors since this will have a huge effect on both the value of your home and your investments.

Only you can set your priorities and create your financial goals if you want to live life on your own terms.

Decide how much of your net worth should be in your home based on what you want in your life.



The information on this website is for education only and is not to be construed as personal financial advice.