Comment by quickthrowman 2 days ago
> Obviously Joe is richer than Pete though.
Yeah, because Joe’s net worth is $200,000 and Pete’s is $300
House equity = current value - mortgage balance
You subtracted the mortgage twice, so your math is off by $200,000.00
Joe is on the hook for his mortgage and so his monthly cashflow must be higher to afford to live. However his net worth is larger and so he is richer.
This is why middle class people often feel poor than those who are poor: they make more money and have more in total, but they also have large bills and if something happens those bills will catch up with them fast.
And that is the interesting part - for a given sudden bill of a certain size, someone more wealthy on paper can have much worse outcomes.
Substitute some numbers until the example makes sense, the point is that net worth can be misleading.