Visible wealth can hide a weaker balance sheet

A personal-finance writer is pushing back on the easy ways people judge wealth: expensive purchases on one side and net worth on the other. For everyday investors, the point is practical: what someone owns, owes and spends can tell very different stories.

The essay builds around two hypothetical tech workers in their mid-50s with similar pay and bonuses. Dan drives an older car, lives in a comfortable but modest home, avoids costly clothes and vacations, and has saved and invested enough to build a $5 million net worth. Net worth means assets minus debts.

Dave earns about the same amount, but spends more visibly. He has a luxury car, a modern upscale home, a jet ski, nice clothes and regular restaurant spending. He still saves money, according to the essay, but less than Dan, leaving him with a $2 million net worth.

The writer says a traditional personal-finance view would put Dan ahead because he has accumulated more wealth. Social perception may favor Dave because people often read cars, homes and other status items as evidence of success. The essay does not treat either answer as complete, arguing that both men could be living in line with what they value.

The writer also gives a real-world example from this year involving a man with a car worth more than $200,000. From the outside, the man appeared wealthy, with the car, house and clothing to match. After discussing a large home repair, however, he asked whether he should borrow from a 401(k), a workplace retirement account, or use a personal loan.

That anecdote is used to make a basic balance-sheet point: visible spending does not reveal debt, savings or financial stress. A high-income person can look rich while carrying obligations that leave little room for unexpected costs.

The essay also argues that using net worth as a scorecard is historically newer than many people assume. Joseph Moore, author of How to Get Rich in American History, writes that net worth is mainly relevant for inheritance, borrowing and status comparison. Moore also says the phrase does not appear in family finance books from the first 200 years of U.S. history, and that “estate worth” was the closest older term for landed family wealth.

From the writer’s view, a large net worth loses some value if fear prevents a person from spending any of it. Heavy spending meant to project success can create the same problem from the opposite direction if it produces constant worry. The essay frames the healthier middle as saving, spending on personal priorities, planning for the future and keeping a burn rate, meaning regular spending, below income.

The discussion was also featured on an Animal Spirits video with Michael on The Compound’s YouTube channel. The broader takeaway is less about ranking who is richer and more about defining what money is supposed to do for the person who has it.

This story draws on original reporting from A Wealth of Common Sense.