You know that you are destined for greatness, yet, when you consider your net worth, you hang your head low in embarrassment because your worth can’t be brought to light yet.
Seeing as you are reading this article, it means that you are ready to shift gears and increase your net worth. Be warned though; the first step is the hardest!
How to increase your net worth?
Your net worth determines your financial position and trying to look into your finances, many years in employment can make you want to increase zeros. Though you won’t make it to Forbes’ ‘highest earner’ list, you are making steps in the right direction.
So, if you are looking to stop living paycheck to paycheck, escaping the vicious cycle of financial distress, gaining financial freedom and building your net worth, follow these guiding tips:
1. Review and pay off your debts
With a write up form or not, you should take a detailed look at your liabilities and determine the amount of debt you owe every month. You should also establish the kind of debt you owe. Once you list your debts, you should find a way of reducing or eliminating them.
The money you owe your bank or a Shylock could be the money you need to grow your net worth. So, as soon as you can, pay off all your debts. You should pay off your high-interest debts before the low-interest debts. Don’t forget to look if the loan has a prepayment penalty – if there is, will it affect your balance significantly?
Debt consolidation is one of the best ways pay off debt especially when you are unable to repay everything with cash at once. To build your net worth, know what you owe and make extra payments to get out of debt fast.
2. Get a raise
The direct way for you to increase your net worth involves increasing your earnings. If you have been in that company for years and you feel like you have done well for the company increasing their portfolio earnings, you may want to ask for a raise. Try that during your annual review.
3. Another source of income
If you can’t get a raise, you should consider finding an alternative source of income. You can still make extra money when on your 8-5 job or you can take up a part-time position whose schedule allows you to work when you have extra time. You may also find freelance opportunities or open an online store selling crafts you can make at home. The truth is, you have unlimited opportunities to make extra money, but we are limited by our time and energy. You should also consider building a passive source of income.
4. Review your assets
How much are your assets worth? Is value of your assets going to change? To get the true value of your assets, you should consider your primary residence, your vacation home, investments, and collectibles.
As you review your assets, you should consider where you live. You should buy a home instead of renting. A rental house doesn’t help your net worth as it goes to someone else pockets and you won’t have anything to show for it.
After buying a house, the mortgage goes into building your equity, and the value of your home will most likely increase. When buying a home, remember that the more you put down, the less the debt you incur.
5. Live a frugal life
If you are trying to keep up with the Joneses, then you will never build your net worth.
If you don’t have a means of income, you must cut down your spending. Rather than increasing your income and spending all that money, you should create a list to analyze your spending. The people who lead simple lives and drive second class but sturdy cars are worth more than a majority who drive the best cars on the market and live posh neighborhoods.
See, there is something people don’t understand, frugality doesn’t mean depriving yourself, it only means focusing on the most important expenses then freeing up money to improve your net worth. You can always invest the extra money.
Don’t stop spending on one thing only ending up spending that money on something else.
6. Invest your money
The money you save from the new source of income or the reduced expenses should go towards investment. When you invest your money in the right place, you will earn more from the investment, and you can always reinvest that money. If you have to save money in an account, ensure that the money is earning interest as you look for an investment plan to increase your earnings.
7. Buy a car you can drive forever
A car bought today will be worth less six months from today, in a year or even after a week. With this in mind and knowledge of high car maintenance fees plus depreciation and insurance premiums, you should buy a car that will last you a lifetime. This is because buying a new car decreases your net worth.
8. Maximize your Retirement Contributions
If you work for a private company, you will realize that your employer’s retirement plan comes with some desirable tax features. In most, there are matching programs set up for your contributions to grow faster. So, if you have such an option at your place of work, you should take advantage of it. Why? Matching plans will defer your taxable income towards your lowest earning years hence increase the total amount of generative assets.
9. Review your annual costs
Are there annual costs that are bringing down your annual costs? Can you find better deals elsewhere? If your annual healthcare premiums and your insurance costs are too high, compare the costs and find out if you can trim down the costs. Remember that an insurance cost is significant if you get sick or something happens to your assets.
10. Get Married
Not what you had in mind but, getting married comes with tax advantages. By combining your assets, you can increase your net worth significantly. Marriage also increases your buying and investing power.
11. Get Help from a Professional
Don’t underestimate the power of a professional. Personal finance managers, real estate lawyers, financial advisors, and accountants will offer you their best advice, and you shouldn’t feel embarrassed by the state of your finances.
You should also consult professionals to learn about ways of utilizing tax breaks. These professionals will also offer advice on budgeting.
The secret to building your worth lies in your attitude towards money more than it relies on your spending/ saving and investment decisions. With the wrong attitude, you will struggle, and you may not get rich!