Your net worth is an indicator of a number of different things, but ultimately it is a key calculation of your overall financial success. Many individuals make this calculation and realize that their net worth is in need of a little adjustment on the positive side. While this adjustment may seem difficult, it actually really only requires having a little know-how and self-restraint. Follow these four steps to quickly and efficiently increase your net worth.
How Do You Determine Your Net Worth?
Understanding your net worth is one of the first steps to positively making an adjustment to it. Simply put, your net worth is the value of everything that you own minus what you owe. Or, in other words your assets minus your liabilities. As you consider your assets, you’ll want to include the amounts in your checking and savings accounts, any brokerage or retirement funds you have, the market value of your home, the approximate value of your belongings, the value of your vehicle, and any cash value of life insurance policies that you hold. To determine your liabilities, consider any loans that you may have, including a mortgage, auto loan, or student loans. You also need to take into account credit card debt and any other loans, such as a 401(k) loan or personal bank loan.
Best Practices for Increasing Your Net Worth
At the very least, you should calculate your net worth once a year. After doing so, you may want to implement strategies to help you improve that value. To increase your net worth, you can follow these simple steps.
1. Pay Down Debt
Obviously because debt is a large part of the calculation of your net worth, paying off as much outstanding debt as you can is one of the primary ways you can increase your net worth. Keep in mind that some loans do have penalties attached for making early payments. To get the most benefit from this strategy, you’ll want to identify your debt with the highest interest and pay it off first. You may also want to consider consolidating your debt or taking out a new loan at a lower rate to off a high-yield debt. Making extra payments and putting as much as you can toward your debt is another tried and true strategy to both eliminate debt and begin to increase your net worth.
2. Maximize Your Return
You likely have money saved somewhere, which counts to your benefit when calculating your net worth. However, if it’s not making as much for you as it could, it’s not doing you much good. Make your money work for you by investing it in a fund or stock that will reap greater benefits. This can sometimes be risky, but you’ll be getting a bigger benefit by investing this way than letting your savings sit in a coffee tin on the shelf.
3. Pay in Cash
Another important way to start increasing your worth is to avoid taking on any additional debt. You can do this pretty simply…Only pay for things in cash, including vehicles and even a home. Paying in cash does nothing to reduce your value and actually only increases it with the new purchase that you’ve made. This is one of the single best strategies for increasing your net worth steadily.
4. Limit Spending
While you may not be guaranteed to come across any new money to invest or pay down debt, you can make the most of what you are currently making by limiting your spending.
The key in this strategy is to limit any unnecessary spending, such as dining out, shopping for new clothes, and even purchasing new electronics.
Another great way to save is to find cheaper alternatives on insurance searching online, including car, health, home, and life insurance. Most policies will allow you to bundle and save, and you can often find better rates by shopping around.
By cutting these extra expenses, you’ll be able to increase the margin between your income and expenses and, in turn, increase your net worth.
While vastly increasing your net worth takes time, these strategies will help you realize an increased value as quickly as you are able to start implementing them.
Michael Rogers is the Operations Director of USInsuranceAgents.com. With over 5 years of experience and knowledge in the insurance industry, Michael contributes his level of expertise as a leader and an agent to educate and secure coverage for thousands of clients.