What is your worth? Financially speaking.

assorted-denomination banknote collection
Canadian and American currency exchange by John McArthur on unsplash.

Is $100,000 a lot of money? I’ve always thought so. As a child, it seemed to be this mythical barrier that represented “a lot of money”, especially when talking about income. My mom would say “You should look at being an engineer, they can make over $100,000.” For similar reasons, I was directed by my family towards medicine as another potential career. In the end, I pursued neither of those, but my fascination with money persisted.

The ultimate metric for financial health that we look at is net worth. It has the word worth in it. It’s hard not to equate your own value to that. As I read more books and articles about money, I was exposed to more reference points. Did you know the average net worth in Canada is $329,9001? With all of these numbers floating around, it’s hard not to start to compare yourself to others and ask if you’re on the right track. This is often a one-way street to regret. As Shannon Lee-Simmons says in Worry-Free Money, “pictures tell only a fraction of the story.” And more importantly, those numbers are just a fraction of the story.

Over the past 10 years, I’ve gone deep into personal finance. After finishing the modern personal finance curriculum, and getting exposed to more fringe ideas and concepts from traditional finance, I was able to start forming my own perspective on wealth. I started to see that net worth is not a helpful metric for assessing success or even your own financial health. It’s static and isolated from any personal context, like a random data point. I wanted to find a way to make net worth more meaningful.

Net Worth in 30 Seconds

Assets (Savings, Investments, House)$450,000
Liabilities (Debt, Mortgage) ($350,000)
Net Worth$100,000

For those unfamiliar, net worth is a simple calculation that takes your total assets (things you own) and subtracts your liabilities (things you owe). What’s left is your net worth, and as with most financial metrics, higher is considered better. But I have a problem with that.

Is $100,000 a lot of money?

Let’s take a quick look at two different scenarios and what that amount means to them.

Nicole is a 29 year old living in the Midwest. $100,000 in savings might be equal to 6 years of expenses for her. On the other hand, it might be just under a year’s worth of savings for Estelle, a 34 year old executive living in Manhattan with her husband and newborn. In the traditional calculation, this small but significant detail is lost. We see them both having a net worth of $100,000, but we can see that $100,000 is over 6x as valuable to Nicole than Estelle.

I read a line on WallStreetPlayboys2 years ago that’s stuck with me, your true net worth is how long you can sustain the lifestyle you want, without working.

Instead of looking at your net worth as an absolute dollar value, I am proposing we look at net worth as a multiple of Your Savings : Your Spending. I use Savings to refer to both savings in your bank account but also your investments; an important distinction but one for another time. To calculate this is simple but requires a bit of work.

Your savings are the total of your liquid assets: typically cash and investments. Your spending is your average monthly expenses: housing, food, utilities, bills, fun. If my savings are $50,000 and I am spending $25,000 per year, my multiple is two.

Total Savings$50,000
Annual Spending (Monthly x 12)($25,000)
Net Worth Multiple2x

I’ve started to use the multiple approach when thinking about my own lifestyle and changes we make. My partner and I like to move around a fair amount. We don’t move far, but in the last 6 years we’ve lived in 5 different spots in Calgary. Each time we move it’s not only a question of “can we afford this?”, but “what does this do to our savings?” By increasing rent by even $100 or $200, our multiple would fall by 1-2. That small change represents one to two additional years of earning to hit our target. This lens illustrates the true impact of lifestyle inflation: spending more not only forces you to save more, but it actively devalues everything you’ve worked for to date.

In a 2018 Bloomberg article, Joe Duran of United Capital said “It is a resource that lets you have choices, but if you don’t think about what you are working for, you will die rich but not live rich.” My advice is not to specifically focus on maximizing your savings and minimizing your spending but to provide you with a new lens for assessing your own financial decisions. This is just one aspect of wealth and wellbeing; money is not a healthy way to evaluate one’s worth. Money is a tool to help us pursue what we want or need and $100,000 in savings can be a lot or a little. It’s all up to you.

  1. Most of this is held in illiquid assets (their homes) and not cash, investments, or other savings.
  2. Please don’t judge me.

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