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Human beings are perpetually consumed with comparing ourselves to each other.

Whether it’s wishing we looked like the actors or actresses on TV, or enviously looking across the street at our neighbour’s shiny new RV and then longingly glancing back to our used tent trailer from the seventies, we can oftentimes feel like we’re being left behind when it comes to the game of life.

But while keeping score of how we’re doing when it comes to our physical and financial health can be a good thing at times, it isn’t as beneficial as it might seem.

Sure, the rich playboy with expensive cars and multiple houses may SEEM rich, but when you take a look at his books, it’s often a different story.

Drowning in debt and spending many sleepless nights trying to figure out how to pay the mortgages, car payments, and bills – this is a classic case of what author of The Millionaire Next Door Thomas Stanley calls “big hat, no cattle”; those who appear rich based on the surface, but in reality have either very low or even negative net worth.

Largely as a response to Stanley’s book where he studied people with an actual net worth of at least one million dollars, the financially responsible, including personal finance writers, bloggers, and every day people who are crushing it with their money, turned to net worth as the most accurate way to “keep score” of how they’re doing financially.

Net Worth

For those a bit fuzzy on what net worth actually is, it’s pretty simple: all of your assets – debts/liabilities.


Assets would include both liquid assets (cash, stocks, mutual funds, etc.) and illiquid assets (real estate, cars, antiques, collectables, etc.)

Debts on the other hand, well we’re all pretty familiar with those: mortgages, car loans, student loans, credit cards, lines of credit, etc.

For a long time net worth has been held up as the gold standard when it comes to tracking someone’s wealth and financial success. It’s become so widespread that the once taboo topic of sharing your net worth is now everywhere.

You can’t spend more than 10 seconds on any financial blog these days without being inundated with someone sharing the tracking of their net worth.

And I get it.

It’s a GOOD way to track your financial health.

But it’s not the ONLY way, and it may not necessarily even be the BEST way.

Here are 6 alternative ways to determine if you’re financially fit.


1) Do you spend less than you make?

When it comes to money health, how you manage your monthly cash flow says a lot about your financial situation.

Someone who is financially healthy always spends less than they make.



Spending less than you make gives you the ability to save, invest, or weather the storms of life that will inevitably come your way.

Even though spending less than you make is probably the most basic of all tenets in personal finance, it’s one that can easily be violated by someone with a high net worth who appears to be financially fit.

Let’s say you’ve been really good with your money and have invested into 2 or 3 rental properties, each with a mortgage. They have appreciated in value and are generating enough money to pay the mortgages.

On your balance sheet, they show up as assets, meaning they positively impact your net worth.

But they say nothing about your ability to manage cash flow on a regular basis. Someone with a high net worth could be in a precarious position financially, one real estate market crash or interest rate hike away from financial ruin.

When it comes to your financial fitness, spending less than you make is ALWAYS a great indicator.

2) Do you pay your bills in full and on time?

Again, this one seems like a no brainer, but for many this is a great indicator of how you’re doing financially.

Are you late with your bills? Constantly paying minimums on your credit cards and relying on them to carry you from one month to the next? Are you getting dinged with late fees when it comes to making payments or regularly going into overdraft?

These are all warning signs of a potential impending money disaster.

The person with a high net worth is not immune to these headwinds.  If they are leveraged when it comes to credit and their cash flow is already tied up, not being able to pay the bills is an ever present danger.

3) How much do you have in liquid assets?

Sure, you might have a net worth of over a million dollars, but the majority of that may be tied up in illiquid assets. For most Canadians, this is their primary residence.

Back in 2015 real estate accounted for 49% of Canadian’s respective net worths.

That’s an insane number.

And that is because this “wealth” is ILLIQUID!! You can’t get at the money unless you want to go into debt with a home equity line of credit (which would count against your net worth) or sell your home and downsize (which most people don’t want to do, at least until they are older).

Even though the data is 3 years old, that number would be similar today across the country as house prices have levelled out on average thanks to a cooling off of the markets in Toronto and Vancouver.

Perhaps you bought a home several years ago that has greatly increased in value. Maybe you’ve got rentals in a rapidly declining market where selling is very tough.

Sure, you could sell your house (if you want to) or rentals and pocket the cash, but there’s no telling how long it would take or what your return would be.

You just never know.

The point of having liquid assets is to be able to use them to help ride out unexpected life events.

Maybe a family member gets sick, you lose your job, or some other unexpected emergency hits you like a ton of bricks.

You may be rich in terms of your net worth and have money tied up in real estate or other illiquid assets, but they aren’t going to do you any good in these situations.

When it comes to financial health, liquid assets rule the day.

4) Your Debt to Income Ratio… with a twist

When it comes to financial health, carrying too much debt is trouble.

Why? Because debt brings with it risk.

Sure, you may be carrying the debt comfortably now, but what about when interest rates go up… again?

Rising interest rates could put you in danger of not being able to make your debt payments and having to sell assets (hopefully to make money) or to declare bankruptcy.

Traditionally, debt to income ratio has been calculated by adding up all of your debt (things like mortgages, car loans,and credit cards) and dividing it by your annual after-tax income to get a percentage. A little bit of number crunching and you’ll have your ratio.

If, for example, your total debt is $100,000 and your after-tax income is $90,000, your debt-to-income ratio is 111 percent.

But when take your total debt and compare it to your annual income, two numbers that don’t have any real relationship to each other, it’s like comparing apples to oranges. Your total debt doesn’t have a direct impact on your total annual income.

Instead, it’s better to figure out your MONTHLY debt to income ratio. Take your total monthly debt payments (mortgage, car, credit cards etc.) and divide that by your total monthly take home pay and multiply by 100.

Let’s say I’ve got monthly payments of $1,500 for my mortgage, $600 for a car, and $300 for credit card debt and I bring home $5,200 a month.

My monthly debt-to-income ratio would be $2400/5200 x 100 = 46%. Because this number compares directly what’s going out vs. what’s coming in, it gives a better idea of how you’re doing.

So what’s a good number?

Generally, anything below 36% is considered solid. But the lower the better!  In fact, it’s my goal to get to zero… one day!!

5) Do you have the appropriate insurance in place?

When you’re properly insured, it allows you be resilient when life unexpectedly smacks you in the face with an injury causing job loss, the death of a loved one, or a health emergency.

Being adequately insured lets you sleep peacefully knowing that when the unexpected does happen and it starts to pour (and make no mistake it will), you’ve got a giant umbrella to weather the storm.

Two cautionary comments:

i) Over insuring can be a common pitfall when purchasing insurance. These days you can get everything insured from your wedding to the potential of multiple births.

Don’t go overboard on insurance.

Cover the critical: aside from having great house and car insurance, everyone should have life insurance (the amount being dependent on a host of factors), disability, and a supplement for your health care costs, to cover things like prescription drugs.

ii) Not all insurance is created equal.

Yes, you may have house insurance, but your policy may not cover everything you think or hope it does. When buying insurance, be sure to read the fine print.

I actually switched insurance companies because the sewer back up on my home insurance only covered $10,000. A friend of mine in the disaster restoration business told me that for them to even come in the door of a house flooded because the sewer backed up, I’d be looking at $100,000.

And so….I switched my policy. Fast.

Be sure you know what your policy covers and doesn’t, and only get the insurance you need.

6) How well do you plan ahead?

One factor that directly correlates to your level of financial health is how much you look into the future and plan your finances accordingly.

Whether it’s saving for a new vehicle you know is probably going to need to be replaced in a few years, or stashing cash for your kids’ education and your retirement, people who try to see down the road and save for the future are typically financially fit.

Those “take life as it comes” kind of people often get caught with their pants down when it comes to having money set aside future expenses. As a result, they have to rely on debt to get by and this reduces their financial health.

If you want to be financially fit, be sure to plan for the future!

Bringing It All Together

We all have an innate need to compare ourselves to others, to know how we’re doing, to keep score.When it comes to money, net worth isn’t a terrible way to do this. It’s just not the best.  These 6 ways will give you a more accurate method to determine what your financial fitness level is.

Are you financially a bit flabby? Do you need to tone up in a few areas?

Each of the 6 methods are super specific which allow you to focus in on them with laser-like precision to experience real, tangible growth. You won’t feel like you do when you try to “get in shape” and wander aimlessly around the gym from one exercise machine to the next.

Maybe you need to focus on your planning, or your debt, or your liquid assets. You’ll know what area you need to specifically hone in on and what you need to do to grow and improve your financial health.

By doing that, you’ll get in great financial shape and give yourself every chance for a bright and successful future.

Article comments

Vizzy23 says:

Had a question about the credit card debt. If I pay my credit card balance every month in full, do I still have credit card “debt”? For the purposes of calculating the Debt-to-Income ratio, should I include the monthly credit card balance payment?

Laura says:

Great points and reflection. I particularly like your last point about planning ahead. Death, medical problems, car breakdowns, and unexpected expenses can all be planned for if you make it a priority. It almost encompass all your other points!

Great post! Really appreciate your bringing up the life insurance aspect. It’s the responsible thing to do if you have loved ones who rely on you in various ways.

Matt says:

Hey fbgcai,

Here’s the link for the numbers in 3). I’m assuming you’re asking about the 49% of net worth tied up in homes. It’s from MoneySense.


Thanks for checking out the piece! I appreciate it!

fbgcai says:

Could you please cite the source of your numbers ? Particularly the numbers in the “3) How much do you have in liquid assets?” section. Thank you.