As we get older, it becomes more apparent that financial stability isn’t just budgeting well. Things like credit scores and debt-to-income ratios are vocabulary terms that we learn, often through hard lessons for many of us.
Another necessary term in the world of personal finance is ‘net worth.’ You can budget all you want, but until you know what your net worth is, it’s hard to set accurate goals and targets.
Figuring out your personal net worth isn’t complicated. It’s a simple math formula where you take all your assets and liabilities and total them up. Subtract the liabilities from the assets, and you have your net worth.
This number gives you a clear picture of your current financial situation so you can begin to set goals. Then, use the net worth calculation as a way to check on your progress.
The idea is that over time, you will pay off liabilities and add to your assets, thereby growing your net worth. To increase this number, of course, you’ll need to spend less and save more.
It sounds easy, but we all know how money burns a hole in pockets. If you’re feeling like your earnings are gone before you get them, try these five tips to increase your net worth gradually.
1. Get That Debt Paid
Go against every piece of expert advice you’ve ever heard and stop thinking about saving. Yes, stop putting back money into savings—until all your debt is paid off.
If you haven’t paid everything that has interest tacked onto it, saving money is actually causing you to lose it.
It’s okay to keep a revolving account open, like a mortgage or car payment, if you can’t pay them off easily. In fact, having these types of accounts that are regularly taken care of helps your credit score.
Those high-interest credit cards, though? They have to go. Anything with a low balance and your highest interest rates should be tackled first.
Get rid of them and then start working on the rest of your debt. Slowly, your liabilities will decrease and you can start saving again.
2. Get Honest With Your Spending
Paying off the credit cards and then racking them up again isn’t going to help your net worth. If that’s a habit you find yourself in the midst of over and over, it’s time to get real honest about your spending.
Look at your last few bank statements, in detail. Do you see a pattern? You might need to add up all your extra spending, like restaurants and entertainment or clothing.
Once you have those totals, if they shock you, there could be a problem in your shopping habits. You should enjoy your life and you work hard for your money! However, cutting back on unnecessary expenses now will increase your net worth permanently later.
3. Consider Investing
Getting involved in the investment business looks totally different than it did even a few years ago. If playing the stock market is scary to you, you have lots of other options instead.
Before you get started, get familiar with your risk tolerance level. This number will guide you to the types of investments you are more likely to be comfortable with.
Some people are cautious and will be happy with a small return on their investment with greater security. Others want to make as much money as possible, quickly, and they don’t mind the risks involved.
Once you know your risk tolerance and how much you’re able to start investing, you can create a portfolio. Over time, this will diversify as you learn the opportunities you have.
4. Stop Keeping Up With the Joneses
Poor spending habits is one thing. “Needing” the best of the best and constantly upgrading for appearances is another.
This practice of “keeping up with the Joneses” is common, but financially dangerous. Do you really need the latest gaming system or is yours just fine? Is your car seriously ready to be replaced, or do you just want the latest gadgets?
When you’re more concerned about appearances than your net worth, it’s difficult to get rid of liabilities. The latest fashions, expensive meals, and daily lattes replace your financial stability.
Worry less about what others think of you and focus on adding to your bank account.
5. Turn to the Experts
Most people go to their accountants once a year, to file their mandatory taxes. But these experts are available all year ‘round to give you advice before you file.
When you have a financial advisor or accountant you can access for help, use them wisely! They may be able to give you tips on how to save receipts for write-off purposes, how to move from one tax bracket to another, and how to handle your money better.
Don’t feel bad for asking for help. They are, after all, the experts! It’s what they get paid to do, and as you invest in their services, your net worth grows with your new knowledge.
Conclusion
Increasing your net worth rarely happens overnight. Through these gradual processes, you can decrease your liability and welcome a financial stability you can grow with into your retirement years.
