Adjusting to a Rising Net Worth

When you start saving towards an early retirement, you understand that your net worth will steady increase, but I don’t think many of us consider what that changes in your life.

The first most obvious change becomes the ability to self insure on more minor things.  You don’t buy the extended warranty because if something stops working you can just buy a new one.  Then later on when you have even more saved you can raise your home insurance deductible since you can handle even larger costs.

While those did cross my mind, I didn’t realize another insurance adjustment you can make down the road is having less life insurance.  After all life insurance is about replacing lost income and when you have a large amount of money saved you really don’t need to replace as much income.  So right now I’m in the process of reducing our life insurance coverage by half.  We previously had $500,000 each for coverage, but that is becoming obviously overkill with the steady increase in our investment net worth.

Yet the most profound change of a growing net worth I have noticed is the ability of increased choice.  Money ceases to be a major barrier to your decision making process, the question of ‘can I afford this’ isn’t relevant to many discussions.  Instead your questions turn to: do I want this?  Will this be a good value for my money? If there another choice I would prefer to do instead?

More money also allows for more opportunities in your life.  For example, a real estate deal comes up that is attractive, if you have enough money to invest you can potentially take on something that otherwise would be out of reach.

There is also a dark side to having more choice, your ability to put up with bullshit and crappy situations goes down hill since you know you can walk away from many more of them.  For example, for most people walking away from your job after a crappy week isn’t a valid option, since you have bills and a mortgage to pay and usually not enough savings for a long period of not working.  Yet when you have several years of living expenses saved up, the situation changes and you can walk away.  Then I find I have to take a break from the situation and determine if the issue is temporary and if I can cope with it.  Or if the situation is more permanent in nature how to get around it or determine a threshold at which I won’t put up with it anymore.  I once spent six months in a really crappy job situation and it was too long as I was become someone I didn’t like.  So now I have a much shorter fuse.

Overall I find having more choice just causes me to think more about my options.  So while that can be a good thing, it can also result in over thinking about some situations.  So what do you enjoy most about your increasing net worth?  Or what is the worst part of it?

5 thoughts on “Adjusting to a Rising Net Worth”

  1. Interesting post, Tim. You touched on several items, most of which I agree with but some not totally.

    Extended warranties – I still buy one if I buy a new PC because I have had some bad luck with them over the years. Also, I may not want to go out and buy a new one automatically if I need to recover stored data I did not necessarily back up. (I do backups every month now, but that is not foolproof.) In a way, having more money simply means I won’t mind spending another $30 on a $400 PC to get some extra comfort if the PC has problems in its first 2 or 3 years.

    More generally, I had always had a philosophy of “not sweating the small stuff” financially. But over time, as my net worth grew and grew, my definition of “small stuff” also grew, and not all of it was due to inflation.

    One insurance adjustment I made a few years ago was to increase the liability limits of my personal auto policy from 100/200 to 250/500. I have more assets to protect now and I don’t want to exhaust my liability insurance limits too easily and have to pay out-of-pocket. Again, paying another $100 per year for this extra protection is worth it. I considered Personal Umbrella but decided against it becasue, living in a large co-op apartment complex, I enjoy a degree of this already from the co-op’s large liability policy. My exposure to an additional assessment is very small should the co-op’s high policy limits get pierced.

    I see your “dark side” as another bright side because I can walk away from crappy situations and not have to put up with the bullshit. I did that several times in my working years once I had lowered my expenses and built up more net worth (investments). I did not fully walk away from the job but instead was able to reduce my weekly hours worked and greatly lessen the annoying parts of working (i.e. the awful commute) and live on half (or less) of my pay. Eventually, as the net worth grew and grew, I felt myself growing stronger and stronger before busting out of my cage, so to speak, and retire for good in 2008, reducing my commute to its actual goal – ZERO.

  2. We have an umbrella policy since the house became paid off as we now have an asset to protect. We volunteer with college students which exposes us to a little more liablity than normal.

    We haven’t reduced our life insurance yet. But having additional reserves will likely allow me to work part time when we adopt. I can comfortably help the children into their new home.

  3. My wife and I have found as the net worth has grown – actually exploded in last couple of years is that the amount of options about how to proceed with our lives has also grown. It is a problem we are more than happy to tackle. 🙂

    The best thing about ever increasing net worth, apart from the rise in the ability to tell my boss to “go shove it” is simply the fact that the more money you have, the easier and quicker it grows. Our largely dividend based portfolio, valued at around 1M, is spinning out income that we simply cannot spend in a year, given our chosen lifestyle. This didn’t happen when our portfolio was at 500k, years back.

    When I look at our finances now, it’s like a self perpetuating machine.

  4. I could name 1000 ways in which money has changed things for the better. I remember years ago having my furnace go in the middle of a cold winter and not having enough money to get it repaired. It’s quite overwhelming to be in that place in life.
    I had my furnace go on Christmas Eve about 4 years ago (and it was a balmy -25C or so at the time) but couldn’t get a repair guy out, then he didn’t have the parts, then they had to be ordered in. Over a week later, my furnace was fixed but in all that time, I thankfully never had the thought of how will I pay for this? I could focus on action – firewood for the fireplace? Pick up a space heater or two? Leave the oven door open all night or just part of it?

    If there’s a worst part, I would say it’s probably that I still think in absolute and not relative terms with net worth for many things. Not with the stock market fluctuation fortunately but on the spending side. Like I will see that I paid $38k or so in taxes last year and be absolutely horrified because that’s about what I spent that year. But relatively, it’s not that big of a deal.

    I also think there’s a weird, slippery kind of slope in trying to optimize spending or some really strange desire of many bloggers (and others) to have the lowest spending possible. Maybe that’s a guy thing though. Mostly when you get to a solid number, you just have to avoid doing anything really stupid and you’ll be okay. But people sometimes seem to get overly neurotic about this stuff (eg. excessive calculating of SWR’s). Myself included.

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