Finding ways to increase your net worth is one of the most important financial activities that many people are concerned about. When it comes to finances, income is top of mind for most of us. We want to make sure we’re earning enough to meet our expenses and financial goals, or that we have enough money left over to take a family vacation or have fun with. There’s nothing wrong with focusing on your income, but it’s crucial to also focus on your net worth.
Your net worth is the value of all your assets, minus the total of all your liabilities. Simply put, your net worth is what you own minus what you owe. If you’re curious about what your number might be, here is a great guide on how to calculate your net worth.
Common examples of assets could be a car you own outright, equity in your home or investments. Liabilities could be a car loan you have, student loans or credit card debt.
I encourage you to sit down right now and calculate your net worth by adding up the value of all the assets you have, then subtract the total amount of liabilities you have from it.
Go ahead. I’ll wait.
Were you surprised by the number at all? If your net worth could use some improvement, you want to get into the habit of tracking it regularly. Personal Capital is a great, free way to automate this, as it will calculate and monitor your net worth for you. Checking to see whether you were able to increase your net worth this month is as easy as logging into your account and looking at your dashboard. Checking your net worth regularly will motivate you to make some significant changes to boost your number.
Also, try these five smart ways to increase your net worth this year.
1. Increase your net worth by Reviewing Your Annual Expenses
When you calculate your net worth, you want to review annual expenses that could drag on your budget. Are there any expenses you tend to cover on a credit card? How much is loan interest costing you per year?
Annual expenses can be sneaky because they only pop up once a year and while you should be prepared to cover insurance premiums, holiday costs, etc. it’s so easy to procrastinate. Plus, costs that accumulate through the year can also be surprising once you find out how much you actually spend on auto insurance, car maintenance, student loan debt interest and so on.
Trim is a free tool that analyzes your spending to find subscriptions you don’t use or bills that can be lowered. Using it could help you cut your expenses.
Once you carefully review these annual expenses, consider which costs you don’t really need or the ones you can reduce so you can add more money back into your net worth.
2. Develop a Debt Pay Off Strategy
Paying down debt is one of the best things you can do to increase your net worth. (Here are nine ways you can pay off debt faster.) Having lots of debt can usually put you in a negative net worth bracket. Plus, no one really wants to make extra payments forever.
Start by deciding which debt you’ll get rid of first. It’s best to knock out high interest debt from credit cards and personal loans first, then work on lower interest debt like student loans.
The best way to do this is to consolidate or refinance your debt to a lower rate. Below are the top options to do that:
- Avant – best for credit card or other type of consumer related debt
- SoFi – best for refinancing student loans
Some people even consider paying off their entire mortgage debt, which could provide a huge net worth boost if you’re able to own your own home outright.
Pick somewhere to start, then make extra payments each month. Even if your net worth is negative, it will slowly start to increase.
3. Boost Retirement Contributions
Another smart way to increase your net worth is to boost retirement contributions. If you have a 401(k) through your employer and you aren’t contributing the maximum, see if you can bump up contributions by a percentage point or two.
Odds are, you won’t even miss this money since it will be deducted before taxes. If you have the option, make sure you’re contributing enough to receive your employer match. This is free money added to your retirement account so you don’t want to miss it.
Another option would be to open an Individual Retirement Account (IRA) on your own or an online brokerage account and start investing there.
Ally Invest is a great option here as they have no minimum balance requirement and charge an industry low $4.95 per trade.
4. Save Your Annual Raise
If you received a raise recently, an easy way to increase your net worth is to save it.
Having some liquid savings outside of your investments is super important. Instead of inflating your lifestyle and spending more money just because you have more to spend, keep living how you have been and put that extra money toward your emergency savings if your account isn’t fully funded yet.
You can also set the money aside for home repairs because even though you will eventually spend it, the money will go toward adding value to your home, which will ultimately help increase your net worth.
While you’re at it, try to earn a little something on your savings with a bank like Barclays Savings, which pays at least 1.40% on your savings balance and has no minimum balance requirement.
5. Diversify Your Income
I can’t really stress how important it is to diversify your income these days. You can pay off debt faster, save more money and improve your net worth just by doing this.
I picked up a part-time job this last year at my son’s school and my husband drives for Lyft and Uber on the side. Add in his day job and my business income, (which also comes from a variety of sources) and we easily get paid every single week.
When you have different income streams, it becomes easier to focus on the four strategies mentioned above. You don’t have to work 24/7 either or earn a ton of money. Start by looking at your current skill set and interests.
Then, determine what you would like to do and survey how much other people are earning for doing similar work before making your final decision. There are a number of passive income ideas that you can start using today to diversify your income.
Solutions are not just going to fall from the sky. The best thing you can do is get started and begin raking in the extra cash to decrease your liabilities and increase your assets.
No matter where your net worth stands (even if it’s negative), it’s important to calculate that number and track it regularly. Consider doing some of these things to improve your net worth each year. It may seem slow in the beginning, but once your net worth starts growing, it can literally take off.
How often do you track your net worth? What are some ways you’re looking to increase your net worth this year? What is one big financial goal you’re working on this year?
Source: Frugal Rules