A basic test of your financial situation is whether you own more than you owe. A positive net worth is a definite plus, but I sometimes think we make too much of it.
Every quarter, Statistics Canada produces a Household Balance Sheet report that compares the value of assets like home equity and investments against the amount owed by households. Your net worth is the amount by what you own exceeds the amount you owe.
There was some good news on that front in the latest household balance sheet report, issued late last week. Net worth in the second quarter of the year was 19 per cent higher than a year ago. Debt levels rose, but rising home and stock prices offset that. All good, right?
Sure, to some extent. Rising net worth is a sign you’re climbing the wealth ladder. But net worth is also an overrated number because it’s just a snapshot in time and can change on a dime. Stocks and houses have delivered exceptional gains lately, but assets like these can fall in price, too.
Debt levels are much less volatile. People tend to pay off debt gradually and, as a country, we tend to add to our borrowing on a consistent basis. Mortgage debt has grown during the pandemic and borrowing via loans and lines of credit is expected to pick up when the pandemic recedes enough to permit a more normal level of economic activity.
The economic analysis I see often treats gains in net worth as a big win. No doubt, we want net worth to rise. But let’s not make too much about wins based on borrowing being offset by the rising price of assets that can fall in value as well.
Here’s a net worth game plan: keep track of your net worth once a year, strive to keep improving your financial position by saving and investing steadily and remember that paying off debt is a big help as well. Enjoy big increases in net worth, but remember they could melt away.
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Rob’s personal finance reading list
A voter’s guide to housing affordability
An analysis of the housing policies of the Conservatives, Greens, Liberals and NDP by Generation Squeeze, an organization working for intergeneration fairness in government policy. Here’s an analysis of the Liberal housing plan by the Better Dwelling blog. Now for a story that illustrates how expensive houses are to buy: an Ontario engineering consultancy is providing employees with $20,000 to use a down payment on a first home.
Affordable makeup
A personal finance blogger talks about how makeup has become more of a discretionary expense in the pandemic. She lists makeup brands that are inexpensive and also socially responsible products, ie no animals harmed.
Why it might be a good time to change your auto insurer
The insurance company with the best rates in your younger years might not have the lowest costs when you get into your 40s and 50s.
Best prepaid credit cards
A comparison of prepaid cards, where you load money onto the card before using it. Three cards with no annual fees from alternative financial companies, plus a bank option designed for travellers who want to load multiple currencies on a prepaid card.
Ask Rob
Q: What should you do with all the money from a house sale if you’re a person who is going to rent?
A: Sounds to me like a financial planner would be helpful in putting this money to work in a way that meets your needs both now and in the long term. Should you invest it for growth, to generate income or to preserve capital? Can you dip into the money, or should you try to keep it whole? How can you minimize taxes? These are all questions a planner can help with.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
My Rate Compass, a website for comparing financial products, has relaunched with content that includes hard-to-find information on rates for credit lines and loans. Credit cards, mortgages and insurance are also covered.
The money-free zone
Author Michael Chabon put together this fun Spotify playlist, which is titled Love Can Make You Happy. Chabon wrote The Amazing Adventures of Kavalier & Clay, which is one of most enjoyable books I’ve read.
Tweet of the week
An economist tries to reframe the issue of housing. Talk more about availability rather than affordability. In other words, build more.
ICYMI
What I’ve been writing about
- If the federal parties really wanted to help seniors, they’d abolish mandatory RRIF withdrawals
- So you got your kid or grandkids into stocks: What happens when the market crashes?
- Big bank policy on third-party funds sabotages advisers and serves investors badly
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing … and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
