Why Net Worth Isn't Everything

You check your net worth religiously. Up $50,000 this year—you’re winning. Down $30,000—you’re anxious. Every financial decision gets filtered through “will this increase my net worth?”

Then you realize you’re miserable. You have $500,000 in retirement accounts you can’t touch for 20 years. You’re house-rich but cash-poor. Your net worth is impressive but your life feels constrained because you optimized for a number instead of for what money actually does.

Net worth is a useful metric. It’s a terrible goal.

The Problem

The personal finance community treats net worth as the primary measure of financial health. Track it monthly. Graph it over time. Compare it to milestones. By 30 you should have 1x your salary in net worth. By 40, 3x. By 50, 6x.

These benchmarks assume net worth captures everything that matters financially. It doesn’t. Net worth is total assets minus total liabilities. It tells you the accounting value of everything you own minus everything you owe. It doesn’t tell you whether your financial situation actually serves your life.

Someone with $800,000 net worth might have: $700,000 in retirement accounts they can’t access until 59½, $200,000 in home equity they’d need to sell their house to use, and $100,000 in student loans. On paper they look wealthy. In practice they might be stressed about monthly cash flow and have no financial flexibility.

Someone with $200,000 net worth might have: $50,000 in accessible savings, $100,000 in retirement accounts, $50,000 in home equity, and no debt. Lower net worth, but much more actual financial security and flexibility.

Research on financial wellbeing shows that liquidity, income stability, and spending flexibility correlate more strongly with financial satisfaction than net worth. People care more about whether they can handle unexpected expenses and make choices without financial stress than about their total net worth number.

The net worth obsession creates several problems. It encourages accumulating illiquid assets. It treats all assets as equivalent when they’re not. It ignores the quality of life during accumulation. It creates false equivalence between people in completely different financial situations who happen to have similar net worth.

Why high earners fall into the net worth trap

Knowledge workers are particularly susceptible to net worth optimization because it’s measurable and comparable. You can track it precisely. You can compare it to benchmarks and peers. It satisfies the same achievement motivation that drives career success.

The problem is that maximizing net worth can work against actual financial wellbeing. You might dump every dollar into retirement accounts to maximize net worth growth, leaving yourself cash-poor and stressed about monthly expenses. You’ve optimized the metric while degrading your financial quality of life.

Many high earners discover this when they look wealthy on paper but feel poor in practice. They have impressive net worth in their 40s but can’t actually do the things they want because the money is locked in retirement accounts or tied up in home equity. They’ve spent 20 years optimizing net worth and neglecting liquidity.

The optimization trap is particularly insidious with stock compensation. You receive RSUs that vest over time, and immediately you’re calculating how much your net worth increased. But you haven’t sold the stock. You might not sell it for years due to tax planning. Your net worth is high but your actual available money might be limited.

Some people hold highly appreciated stock specifically because selling would reduce their net worth (due to taxes paid). They’re keeping money in a specific form—volatile, concentrated positions—because net worth optimization says don’t reduce the number. Meanwhile they’re taking financial risk and lacking diversification.

The comparison culture around net worth is also damaging. You might feel great about your $300,000 net worth until you learn that your colleague has $500,000. Suddenly you feel behind. But your colleague might have no emergency fund and massive stress, while you have $100,000 accessible and sleep well at night. The net worth comparison is misleading.

What Most People Try

The common approach when someone realizes net worth isn’t everything is to track additional metrics. Net worth plus cash on hand plus income. Or net worth divided into accessible versus inaccessible portions. You’re adding complexity to capture what simple net worth misses.

This helps marginally but doesn’t solve the fundamental problem, which is organizing your financial life around a number rather than around outcomes you actually care about. You can track ten different metrics and still not know whether your financial situation serves your life well.

Some try to create adjusted net worth calculations that weight different assets by liquidity or utility. Retirement accounts count as 50% of face value since you can’t access them yet. Home equity counts at 70% since it requires selling or borrowing to use. These adjustments try to make net worth more meaningful.

Adjusted calculations are more accurate but still treat financial health as primarily about the size of numbers. They don’t address whether the financial structure enables the life you want to live or whether you’re sacrificing wellbeing to maximize the numbers.

Others simply track net worth less frequently. Check annually instead of monthly to reduce obsession. This reduces the emotional volatility of watching numbers fluctuate but doesn’t change whether net worth is the right thing to optimize for in the first place.

The reduced frequency approach is like weighing yourself less often when trying to lose weight. It might reduce anxiety but it doesn’t address whether weight is the right metric for health or whether the approach to losing weight is sustainable and healthy.

What Actually Helps

1. Optimize for financial optionality instead of net worth

Net worth measures what you’re worth if you liquidated everything today. Optionality measures what choices you can make without financial crisis. These are completely different metrics that often push you toward different decisions.

High net worth, low optionality: $800,000 in retirement accounts, $300,000 in home equity, earning $120,000 annually but spending $115,000. You look wealthy but you can’t actually take a year off, relocate, start a business, or handle income reduction without crisis.

Lower net worth, high optionality: $200,000 in accessible savings, $150,000 in retirement accounts, earning $80,000 but spending $50,000. Your net worth is lower but you could take several years off, relocate anywhere, start a business, go part-time, or weather major life changes.

The optionality-focused person has better financial position for actually living their life despite lower net worth. They’ve optimized for flexibility rather than for a number.

Many people resist prioritizing optionality over net worth because optionality means holding cash or near-cash that earns lower returns. You’re “losing” potential investment gains to maintain liquidity. But those potential gains are only valuable if you’re eventually going to use the money, and you can only use it easily if it’s accessible.

Practical implementation: calculate your financial optionality score. How many years could you maintain your current lifestyle with no earned income, drawing only on accessible savings? This number matters more for most life decisions than your total net worth.

If your optionality score is less than one year, building it should be higher priority than maximizing net worth. Get to two years of accessible runway before you focus on accumulating illiquid retirement savings or home equity.

This doesn’t mean never investing in retirement accounts or never buying property. It means sequencing financial decisions to build optionality first, then work on accumulating illiquid wealth. Most people do the opposite—max out retirement accounts from day one while having minimal accessible savings.

2. Track financial outcomes you care about, not just net worth

Net worth is one input to financial wellbeing, but wellbeing comes from outcomes. Can you handle unexpected expenses without stress? Can you make career choices based on fulfillment rather than pure income? Can you support people you care about? Can you pursue opportunities without financial barrier?

These outcomes aren’t captured by net worth. Someone with high net worth might answer no to all of these questions. Someone with moderate net worth might answer yes to most of them. The net worth number tells you nothing about which situation you’re in.

Practical implementation: identify 3-5 financial outcomes that actually matter to your life. These might include things like: handling $10,000 unexpected expense without debt, taking 3 months unpaid leave if needed, relocating for opportunity without financial barrier, supporting family member in crisis, declining work you don’t want without income panic.

For each outcome, determine the financial requirement. Handling $10,000 unexpected expense requires $10,000+ in accessible savings—net worth is irrelevant. Taking 3 months unpaid leave requires 3 months expenses in accessible funds—again, net worth doesn’t tell you if this is possible.

Once you know the financial requirements for outcomes you care about, organize your finances to enable those outcomes. This might mean keeping more in accessible savings than optimal for net worth growth. It might mean prioritizing debt payoff over retirement contributions. The “suboptimal” choices for net worth might be optimal for actual life outcomes.

Many people discover their financial anxiety isn’t about their net worth at all—it’s about specific outcomes they can’t currently handle. Increasing net worth doesn’t reduce that anxiety if the net worth is in forms that don’t help with the concerning outcomes.

3. Value consumption-smoothing over pure accumulation

The standard financial advice is to maximize accumulation early in life when compound growth matters most, then gradually increase spending as you age. Sacrifice when young, enjoy when older.

This creates terrible life experiences for many people. Your 20s and 30s—when you have most energy, health, and freedom—are spent in maximum deprivation to maximize accumulation. Your 50s and 60s—when you might have less energy and more constraints—are when you’re finally “allowed” to spend.

Consumption-smoothing is a different approach: maintain relatively consistent quality of life across your lifetime rather than extreme deprivation early and luxury later. This might produce lower net worth at retirement but higher lifetime wellbeing.

Someone who spends moderately throughout life, taking meaningful trips in their 30s when they can enjoy them fully, building experiences with their children when they’re young, maintaining health and relationships through reasonable resource allocation—this person might retire with less net worth but more life satisfaction.

Someone who maximizes accumulation and minimizes spending for 30 years might retire with impressive net worth but missed irreplaceable experiences, strained relationships from money-driven decisions, and habits of deprivation that persist into retirement.

Research on life satisfaction shows that experiences and relationships in early-to-mid adulthood have outsized impact on lifetime wellbeing. Sacrificing these completely to maximize retirement net worth is mathematically optimal and psychologically damaging.

Practical implementation: set a consumption floor—the minimum annual spending needed to maintain quality of life you consider acceptable. This includes categories that genuinely matter to wellbeing: adequate housing, health care, relationship maintenance, occasional experiences that create meaning.

After meeting the consumption floor, allocate remaining income between additional consumption and savings. The balance depends on your timeline and priorities. But the floor ensures you’re not sacrificing fundamental wellbeing for net worth accumulation.

This might mean contributing 12% to retirement instead of 20% in order to take a meaningful trip with aging parents. Your net worth growth will be slower. You’re making a conscious trade-off that lifetime wellbeing matters more than maximizing the net worth number.

The Takeaway

Net worth measures accounting value of what you own minus what you owe. It doesn’t measure financial wellbeing, life satisfaction, or whether your financial situation enables the life you want to live. Optimizing purely for net worth often produces impressive numbers coupled with constrained, stressful lives.

Better approach: optimize for financial optionality that enables choices without crisis, track whether you can achieve specific outcomes that matter to your life rather than just growing the net worth number, and value consumption-smoothing that maintains quality of life across your lifetime rather than extreme deprivation now for future luxury. Net worth is worth tracking, but it’s a tool for understanding your financial situation, not a goal to optimize for at the expense of everything else.