October 2012
Beginner
192 pages
4h 1m
English
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 ...
