Money doesn’t feel real sometimes.

Jul 3

At a certain net worth, your daily expenses become almost irrelevant.

Your financial wealth is more dependent on the appreciation of your assets rather than your typical expenses.

For example:

Someone might spend $50 a day on food, and he has $500,000 diversified in other currencies or invested in the stock market.
If there is a mere ±0.1% change in the $500,000 asset, that’s a difference of ±$500.
The $50 daily expense becomes almost irrelevant because he could easily “lose” or “gain” ±$500 in one day (assuming the ±0.1% change) outside his control, whether or not he chooses to spend the $50.

Someone in Canada might earn CAD 10,000 a month, with about USD 500,000 saved in US Dollars (that would be approximately CAD 675,000 when USD 1 = CAD 1.35).
If the USD–CAD exchange rate drops to 1.30, that same amount of money in US Dollars becomes CAD 650,000, effectively wiping off CAD 25,000 from his net worth.
Of course, if nobody exchanges anything, then no losses are actually realized.
But on paper, if he were to calculate his net worth in Canadian dollars, his earnings of CAD 10,000 a month would be neutralized by currency exchange rates outside his control.

See what I mean?

Not saying these are applications of any accounting principles, nor am I advocating for careless spending…

Just that money doesn't feel real sometimes.

Ryan Octosa