Your Net Worth Is Wrong (So I Made Myself a Billionaire)

What are you worth?

What a disgusting question. I have a predisposition toward disliking anyone who can tell me their net worth off the top of their head. It’s just gross to think a spreadsheet more accurately totals your merit than your willingness to coach seven-year-old girls’ basketball. Yet, we do it. Some very loudly. There are websites estimating nearly every celebrity’s total figures. No one blares their boom in value more than the suddenly Ferrari-driving crypto bros. Which made me wonder . . . how real is net worth?

After the boom-bust-boom-bust-boom-again cycle of crypto and NFTs had settled in, I rethought my earlier stance on digital assets. As money, I doubted it would do much. If anything (and this is increasingly proving true) I thought cryptocurrencies would support the value of state currencies¹, instead of compete with them. Dollar-backed stable coins, where each coin is backed by a dollar of U.S. T-Bills, allow people all around the world to conduct business in what is a de facto dollar (not a dictator-driven inflationary currency). The day may come when we all pay in digital currencies, but they will make the dollar (or whatever currency is the global reserve) far more important than it already is.

Bitcoin, on the other hand, is just an asset. It rises and falls with the stock market. That’s when it hit me. Americans long had self-issued currencies. And capitalists have long built assets. But we’ve never in history had self-issued assets!

So I made myself a billionaire.

I took a crash course in crypto, figuring I’d learn more by doing. First, I wrote a white paper outlining my plan and posted it to my website. I set up a crypto wallet. To fund it, I jumped through multiple “Know Your Customer Law” hoops. FYI: good luck staying anonymous online when you have to show your driver’s license to move money there. I chose a blockchain (Ethereum). Then I bought USDC, a dollar-backed stable coin (proving my earlier point). My bank, not wrongly worried something weird was going on, created a few days’ delay. A week later, I was finally ready for my big move.

Using an online coding tool, I created my own ERC-20 token currency: Billionairely (ticker: BNLY). Days of painful attempts to learn GitHub and other forums followed. I determined to make the symbol for BNLY a coin featuring William Wells Brown, the man who escaped slavery and issued his own currency (Chapter 3). Next came creating a liquidity pool, where I committed a few hundred dollars of USDC against an equal number of Billionairely coins. In theory, anyone trading in that pool would have to add a dollar to take out a Billionairely token, making each token worth $1. Since I had made over a billion tokens, and I held nearly all of them in my wallet, I quickly checked an online crypto market aggregator to see the value. There it was. Ticker: BNLY—Market Cap: $1.13 billion—Owner: Me.

I just sat there.

“Honey! We’re billionaires!”

“That’s great. Are you going to get the kids from track practice?”

Like the comedy show Whose Line Is It Anyway? said: the points are made up, so the score doesn’t matter².

* * *

Net worth matters in only three moments of life: when you die (who gets what?), when you borrow (can you pay us back?), and when men feel the need to impress one another (whose is bigger?). That’s it. There is no other time when net worth is a relevant stat.

You will search in vain across the first 200 years of U.S. history to find “net worth” mentioned once. It did not occur in a single family finance book before World War I. The historical term that came closest was “an estate worth,” the old English phrase for families with landed wealth. Yet no one referred to total market value. They only referred to annual payments. “An estate worth £300” meant your business paid you about that much each year, only if you didn’t treat your estate like a business, the revenues were sure to dwindle. This is why Jane Austen fans know to beware romantic partners who can’t manage their careers. Dwindling estates are a theme from Sense and Sensibility to Pride and Prejudice.

The term millionaire did occur from time to time. It first appeared in a 1700s French investment bubble where share prices in the Crown’s Compagnie d’Occident skyrocketed and (briefly) gave early investors fabulous wealth overnight. That’s why millionaire has such a non-English sound. The original value would be roughly $30 million today. Beyond the reference to sudden, unimaginable wealth, this was not a math equation. It took no heed of how much debt the paper-millionaire carried. There were no “how to make a million francs” guides.

Housewife manuals from this time made passing reference to the idea that you could inventory everything’s worth in your home, but why would you? “No practical purpose is served³,” and a wife would have to regularly track “the mysteries of fluctuating values in connection with capitalistic accounting.” Early Americans scoffed at such crazy ideas as measuring net worth.

Where did the term arise? You paid for goods that had a net—(pause)—worth of $10. It was a way of saying what your total (net) bill was, much like the bottom of a bar tab. Meanwhile, for most of history a person of great worth meant someone of lofty character. A preacher may be “of great worth” and penniless.⁴ The two terms, net and worth, were irrelevant to one another. The idea of a person or family being worth something as a state of being, as if their moral status could be measured in money, is entirely new.

In the Progressive Era, obsessed with measurements, morality, and especially moral measurements, business accounting switched the term into a running tab on the business and the businessman. Was Carnegie Steel not Andrew Carnegie himself, in a certain way? Accountants, not ones for long reflections on Platonic philosophy, thought that made sense. Here is a quote from one of the first books to use the term “net worth,” an accounting manual printed just before World War I. There was a “common sense principle that a business man should know at all times where his business stands in relation to his creditors . . . Within reasonable approximation he should know his ‘net worth.’”⁵ The worth of the company was the worth of the CEO, the man who’d better know whether or not he could pay back the bank.

Social scientists in the 1940s⁶ picked up the phrase to measure families’ assets against debts. The Supreme Court ruled⁷ it could be used as evidence in tax evasion cases. By the time Ronald Reagan was elected, banks spoke openly of pursuing “high net worth clients.” The popular press took it from there. With a handy measure for personal wealth, advertisers were in a rage to sell watches, cars, suits, and vacations to Americans of a certain status. Net worth became a name tag you wore declaring what you could buy and how much debt you could use to buy it.

* * *

Even if net worth matters, nobody calculates it correctly. Men especially love to brag about their assets, and in nearly every case they exaggerate.

First of all, no one takes out the taxes. About one-fifth of your 401(k) belongs to the government because you never paid the taxes on it (Roths excepted). If you own real estate, that wildly inflated Zillow estimate you’re proud of needs to walk back 6 percent commissions, $5K–10K in legal costs, taxes on profits, and the back taxes from the years of depreciation. Your assets are worth about 80 percent of what you tell yourself, and sometimes less.

On the other side, people forget to add Social Security back in. To the typical American, government benefits add about half a million dollars to their balance sheet. Sure, you cannot sell it, bequeath it, and the ROI is terrible, but that is because Social Security is truly passive income.

The term for accurately knowing what you are worth is “augmented wealth⁸,” which takes into account all the financial benefits you’re qualified for: safety nets, tax breaks, etc. I’ve never met a single investor who could tell me theirs. The typical American family’s net worth is about $200,000, but their typical augmented wealth ranges from $600K–900K. You are wealthier than you think you are.

Beyond your pride, net worth is mostly worthless. Its primary purpose is to confirm you are, indeed, dead—in body, spirit, and account balance—so we can divvy up your stuff. The earliest places to find something like net worth calculations were in probate records, the court that handles assets when you die. Even if yours is positive while alive, you cannot eat it because you probably live in it. Your personal residence is, more than likely, your most valuable possession and it costs you money every month to heat, cool, pay off, repair, and redecorate because someone binge-watched HGTV. It is only valuable when you sell it. Your 401(k) balance doesn’t matter until you retire. Your car loses value every time the kids go to lacrosse practice.