O'Reilly logo

Cash Cows, Pigs and Jackpots: The Simplest Personal Finance Strategy Ever by David Trahair

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

3

Who Wants to Be a Millionaire?

This chapter is going to explore the complicated relationship between money and happiness. After all, what good is money without happiness?

Many people live their lives dreaming of becoming a millionaire. People with that much money must be happy, right? Let's find out whether that is true.

What Is “Rich”?

The common measurement of “rich” is net worth. It's pretty simple to calculate. All you do is list all the things you own (house, car, RRSPs, investments, rental properties, etc.) and the market value of each. Then you list the current balance of your debts (mortgage, car loan, credit card balances, lines of credit, etc.). Subtract total debts from total assets and there you go—the difference is your net worth.

A millionaire is usually defined as someone who has a net worth of $1 million or more.

Net Worth Is a Lousy Measure of Wealth

But there is a problem. In fact, there are a few problems with this measure.

Mixing Pre-Tax and After-Tax Amounts

First of all, net worth statements mix apples and oranges and can therefore be very misleading. Let's look at a simple example.

Would you rather be family #1 or family #2?

Family #1 Family #2
Assets
Principal residence $300,000 $300,000
RRSP (making 4% per year) $200,000 $0
Total assets $500,000 $300,000
Debts
Mortgage (at 4% per year) ($200,000) $0
Net worth $300,000 $300,000

On the face of it you would be indifferent, right? Wrong.

That's because the measure of net worth in this ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required