Increasing your net worth is nothing but increasing your value, meaning financial value. Your net worth is the amount or value you own after deducting your liabilities from your assets.
Why Knowing Your Net Worth Is Important?
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- Why Knowing Your Net Worth Is Important?
- How to Calculate Your Net Worth?
- 7 Best Ways to Increase Your Net Worth
- 1) Pay Your Dues or Go For Loans with Reduced Interest Rates
- 2) Minimize Your Expenses
- 3) Increase Your Earnings
- 4) Increase Your Savings
- 5) Invest More
- 6) Go for Used Cars
- 7) Be Financially Disciplined, Always
Considered the most important financial number and rightly so, net worth helps to assess the financial progress you have made at a given point of time. By knowing your net worth, you get to learn where you stand financially and if your current financial status is what you had hoped to achieve or if you are progressing. If you are where you should be, knowing your net worth can be greatly motivating. If you aren’t where, you should have been, knowing your net worth can guide you to making progress by improvising.
How to Calculate Your Net Worth?
Calculating your net worth is quite simple. Make a list of all your assets including everything you own starting from the cash and its equivalents, your home, vehicles, investment, stocks and jewelry. Likewise write down all your liabilities starting from a mortgage loan, automobile loan, personal loan, credit card dues and every loan that you owe. Subtract your liabilities from your assets and the difference is the net worth. If your assets are more than what you owe, you have a positive net worth.
7 Best Ways to Increase Your Net Worth
Increasing your net worth not only supports you when there is a recession but also helps you financially grow and remain stable. It gives you confidence in your ability to achieve goals and it lets you spend when there is a need without worrying. Here are the best 7 ways to increase your positive net worth.
1) Pay Your Dues or Go For Loans with Reduced Interest Rates
Yes, it can be a tough job to pay your dues but this is precisely where you need to start if you are looking to improve your net worth. Prepare a list of all loans along with the interest and EMI you pay. Start with the loans that carry higher interest rates and work your way to close such loans. If you are unable to close all the loans, you can go for debt consolidation loan for a lower interest rate. Try to reduce your loan by paying towards it whenever you have funds in excess. This will be a challenge as surplus money is mostly spent on purchases. However, if your goal is to improve your net worth, look to close your loans on priority.
2) Minimize Your Expenses
This is another important tip to follow to increase your net worth. Your expenses may be of a much higher magnitude than you thought it was if you care to write down all that you spend. Weekends at restaurants seem a good idea but definitely not so for your finance health. Calculate the money you spend on restaurants in a given month and you will find that you could have paid a good part of the credit card monthly payment with the money spent on restaurants. Yet another aspect to consider is that most of the times when you spend out either at restaurants or at a mall the tendency to swipe the card is more, which again increases your debts. If you are not the type that spends money unnecessarily, it is still recommended to consider if you can cut back any expense.
3) Increase Your Earnings
To increase your earnings, it is best to start it from the place of work. Negotiate for higher pay at your workplace. Whatever amount the increase is, it adds to your earnings. Even a small increase will have a say on increasing your net worth. Well, you may not be happy with a slight increase; nobody will be so. Hence, with the regular job to support your expenses and some savings, take up a part time job to increase your earnings. This will give a significant push to increase your net worth. But don’t forget to limit your expenses as the additional income is not to spend more but to increase your net worth.
If you run a business, you can increase the product or service range that you offer, get more clients thereby increasing your earnings.
4) Increase Your Savings
It is precisely what everyone would love to do, but most of them find it difficult to accomplish. If you have decided to settle your dues, reduce expenses and increase earnings you naturally have more to save. You can achieve it by diverting the money you save on costs and interest into your savings account instead of spending it. If you have been saving a fixed amount or percentage every month, look for ways to increase it. Even a small increase will improve the magic number.
5) Invest More
If you have already invested your money, you sure know the benefits of investing. Increasing your investment not only brings you greater returns but also increases your net worth. As the proverb goes do not put all your money in one type of investment. If you are already into stocks, develop your investment portfolio with investments in mutual fund and index funds. Investing in assets that generate regular income is also one of the effective ways to increase your returns from investment. Aim at generating passive income for an increased net worth.
6) Go for Used Cars
It may not go well with those who love to buy anything and everything new. Buying used cars cuts down the cost thereby saving you your hard-earned money. Depreciation of new car starts right at the moment you drive it out of the showroom. Hence, your asset value decreases followed by a decline in net worth.
7) Be Financially Disciplined, Always
Being financially disciplined helps you to achieve your finance goals. To minimize your expenses and increase your savings you need to follow a strict rule where handling money is concerned. Here are some of the ways using which you can establish yourself as a financially disciplined person:
- Prepare a budget for every month and check if you have followed a budget and if not identify the excesses.
- Let your first expense be your saving. The best way to save for yourself if you are employed is to arrange to deduct from your paycheck every month to invest in 401K or IRA.
- Practice the habit of controlling your finances instead of letting money control you.
- While investing fetches, your returns are wise in investing. Never take risks that may end up costing you a fortune.
- Practice the art of mindful spending. Ask yourself before every purchase if it is a need or a want and if there are less expensive alternatives.
- Use the money you get from investments to reinvest. This not only helps to limit spending but also increase earnings.
- Spend the cash on every purchase you make. It reduces using credit cards and associated interests.
In the world where tough times hit you drastically, you start bouncing back with the firm belief that tough times don’t last. Since only tough people last, be prepared for any unforeseen circumstances by planning a wise budget and living to the plan.