Since happily declaring that my net worth has finally crossed the $100,000 threshold, I’ve noticed a few interesting comments from bystanders. Well, to be honest, these comments have been happening for a while, but there seems to be some fundamental misunderstanding about what a $100,000 net worth means.
I occasionally hear comments from well-meaning friends and family members along the line of:
“Oh come on you’ve got the cash.”
“It’s not like you don’t have the money!”
There seems to be some misconception that having a six-digit net worth means having six digits of cash laying around, which is oh so not the case, as much as I wish it were. So I thought I’d share a deep dive of where my money is, and what a $100,000 net worth looks like. I also thought this might be helpful for anyone up to their eyeballs in debt (as I was five years ago) with no idea how to get from where they are to here.
First, let’s do a recap on what a net worth is.
Your net worth is the value of all of your assets, minus your liabilities. To calculate your net worth, just add up all of your assets including cash, investments, the value of your vehicle and home, and subtract all of your liabilities including your mortgage, car loan, and other debts.
Simple! Whatever number is left is your net worth. Your net worth can be negative if you owe more money than you have in assets. I started out this blog with a negative net worth of -$14,808.
Here’s a breakdown of my net worth, and as you can see, it’s not all cash!
Let’s have a look at the different parts of my net worth, starting with the most significant portion, home equity.
Home Equity (42.5%)
Right now $44,270 of my net worth comes from home equity. That number comes from subtracting my mortgage from the value of my home. My home is worth $285,000 (according to a recent assessment by my real estate agent), I still owe $240,729 to the bank. Using the assets minus liabilities calculation above we get:
$285,000 – $240,729 = $44,271
That means that I own about 15% of my house right now, which isn’t a bad amount of equity one year into homeownership. This equity came from a combination of my 10% down payment, paying down my mortgage over the past year and the value of my property appreciating about $5,000.
While I’m happy that my home equity is boosting my net worth, it’s important not to lean too much on it, since it’s a single asset that could lose a lot of value over a short period, and it’s illiquid unless I sell the house.
I started investing when I was 24, putting $500 per month into my RRSP. In 2015 I bumped that amount up to $550, and this year I started contributing 10% of my freelance income into a TFSA. I use Tangerine Investment Funds, the Balanced Growth Fund, to be specific.
In the three years since turning 24, my slow and steady contributions have resulted in investments totaling $29,222. $27,080 of that is completely inaccessible in an RRSP, and I’d get dinged if I withdraw it. The other $2,142 is in a TFSA which I could technically use in an emergency, but I’d like to hold onto that money.
Car Equity (12.6%)
In January I replaced my aging Volkswagen Golf with a new-to-me Subaru Crosstrek worth $20,634 according to Canadian Black Book. Since then I’ve been diligently paying it off, and I owe $$7,474 on that loan. Using the assets minus liabilities formula above, that means I have $13,160 in equity in this car.
$20,634 – $7,474 = $13,160.
Unfortunately, this equity is not accessible unless I sell it, which I don’t plan to anytime soon.
Finally, there’s the cash. I have about $17,423 in cash on hand, but most of it is earmarked for specific uses. For example, $8,682 of that money is sitting in my emergency fund. $4,700 of that money is set aside for freelance taxes. $2,000 is in a savings account for planned spending on things like gas and my mortgage payment.
That leaves just $2,000 in cash that isn’t “for” some purpose.
How I Got From Debt to a $100,000 Net Worth
I’ve been working on increasing my net worth for the past five years. First I paid off my debt because it was dragging me down with its high monthly interest charges. Then I started investing and increasing my income. It was slow going at first, but eventually, the momentum snowballed. Purchasing a home helped, since a part of my mortgage payment increases my net worth every month instead of the money going to rent.
Today, my net worth increases between $2,000 -$4,000 every month, which is a healthy pace that I’m happy with. I’m still investing, still freelancing, making mortgage payments, and diligently paying off my car. All of these activities contribute to increasing my net worth every month.
Everyone I’ve talked to says the first $100,000 is the hardest, and it’s been a long slog to get here. I’m looking forward to the next $100,000 going a little faster.