When it comes to personal finance, various aspects could interest you. Some individuals get preoccupied with the balances in their savings, checking, or retirement accounts. Others may focus more on their trading and investing funds. For some people, the focus is on how much they owe – mortgage, student loans, or credit cards.
Whether your focus is on your savings, debts, or investments, keeping tabs on each of these aspects is critical in knowing your financial health. However, these aspects don’t determine how successful you are in accumulating wealth. Looking at your net worth is the only way to gauge progress in wealth accumulation.
Net worth refers to the difference between your assets and liabilities. Assets are the things you own: a home and balances in investment, savings, and checking accounts. Liabilities are the debts you owe like credit card debt and mortgages.
If you wish to increase your net worth, here are five things you need to do:
- Cut Down On Spending
One of the fastest ways to get rich is by cutting down on your spending. The less you spend, the higher chances you accumulate wealth.
A great place to begin is conducting a budget review to check your current expenses and identify areas where spending can be reduced. These may include reducing the number of vehicles where multiple car payments are involved. They could also involve taking smaller steps like skipping lunches.
Further, consider reducing annual spending. Evaluate such expenses to determine which costs reduce your net worth and which ones aren’t necessary.
Review your current health and insurance plans and compare the interest rates to see how those costs can be reduced or eliminated. Cancel subscriptions for content assets that you don’t need, like magazines that you don’t read. Once you identify cost-cutting areas, invest the savings to increase your net worth.
- Keep Liabilities In Check
If you’re committed to increasing your net worth, you need to look at your liabilities to know what you owe every month. When reviewing your liabilities, consider what kind of debt you owe and whether it’s one you can reduce or eliminate.
Reducing liabilities is a significant step toward increasing your net worth. For instance, refinancing credit card loans or high-interest mortgages can accelerate your debt payment process. You can repay debts faster when you refinance liabilities with lower rate options.
With credit card debts, it’s possible to refinance them with zero balance transfer. If you decide to refinance debts, pay attention to the expiry of promotional interest rates to avoid interest charges. Alternatively, make changes to your payment plan – instead of repaying your debt every month, make weekly or biweekly payments.
You may also consolidate your debt by taking a loan with a lower interest rate to offset high-yield debts like credit card debts. The idea is to establish how much you owe and craft a solid plan for paying that amount.
- Check Your Assets
Focus on your assets to increase your net worth. Although you may not know the actual value of your asset and how that value could change, use the estimated figures. Ensure that you don’t leave some assets. When keeping tabs on your assets, ensure no asset class is left out.
Some asset classes that you should check regularly include your primary residence, rental and vacation homes, and investments like bonds, retirement plans, stocks, mutual funds, and retirement plans. Your liabilities should include any taxes accruing from these assets.
Other withholdings to include in your calculations are collectibles like fine wines, artistic pieces, classic cars, and jewelry.
- Maximize Retirement Contributions
The other way to increase your net worth is to maximize your retirement contributions. Most employers offer employees retirement plans with attractive tax characteristics. Failing to utilize such programs means leaving funds on the table.
Retirement contributions offer two main benefits: they allow you to defer taxable income and increase productive assets. Acting now enables you to alleviate the most significant impediment to growing your net worth.
- Invest Savings In Interest-Earning Accounts
Investing savings in interest-earning accounts is another strategy for increasing your net worth. Although having a savings account is a great idea, the account isn’t helpful if it’s not in use. Instead, have a lean checking account for regular spending and put everything else in an interest-earning account. Better still, invest your savings in risk-averse investments like the bond market or the guaranteed investment contracts.
Growing your net worth is more about using strategies that address different aspects of your financial plan than doing one thing. When you get the five elements discussed above to work together, you set yourself on the path to increasing your net worth.