If your net worth is not looking how you hoped it would at this stage of life, the good news is there are some simple changes that you can make starting today. Net worth as a term can be overwhelming, many people feel that this term only applies to people who have a lot of money in the bank, and high volume of assets, or little to no debt. While all those factors certainly impact net worth, even individuals with the most modest measurable financial status, have a net worth.
Being preoccupied by the numbers is also quite common, thinking that you need to focus all your energy in one area to achieve your financial goals is one way to do it, but it is not the most efficient. Instead look at the overall picture of your finances and identify areas that can stand to be changed. From there prioritize that list and be sure to take note of what changes can be handled simultaneously. Understanding that some of your financial goals are hinged on one another can ease the pressure of feeling of overwhelm that can accompany the process.
Manage Your Debt
Debt is arguably one of the most stressful pieces of anyone’s financial puzzle. Debt can be so impactful because not only can it snowball out of control quickly, but it also impacts your overall financial health, comes with interest rates that can occasionally change, and even can stick with you after death. Having said that, millions of people pay off large amounts of debt all the time by making choices and sacrifices that serve their unique goals and situation.
Credit Card can be beneficial to your net worth in many ways. The habits you develop and put into practice regarding how you use them can result in a higher credit score and create eligibility for other types of loans. Paying off these debts is also one of the simplest ways to increase your net worth. Homeowners have a unique opportunity to use that asset to reduce their credit card debt through their home’s equity. You can review a guide on your home’s equity from this site to gain information about how you can potentially use that cash to pay off credit card debt. Focusing first on the cards with either the highest balance, or interest rates, and paying them down to zero means you are decreasing the difference between the value of what you own, and your liabilities.
Maximize Retirement Contributions
Saving for retirement is a marathon not a sprint and even if you feel like you are moving at a slower pace that your peers, if you have a horse in the race, you will be ok. Having said that, maximizing retirement contributions as a vehicle for increasing net worth requires a more aggressive approach. Besides maxing out your 401(k) or any other employer matching program contributing to an IRA is going to help elevate your status. By having both accounts you are now able to take advantage of both tax benefits.
The total amount that you contribute to both accounts also helps to lower your total taxable income which can favorably impact your annual tax return. Even in the first draft of your personal finance plan retirement must be included. Retirement savings is considered an asset which is another way to tip the scale in your favor in terms of calculating and increasing your net worth.
While arguably the most obvious approach, reducing your expenses to grow your net worth is also the least exciting. None of us want to cut out things we love, change our spending habits, or feel forced to say no to things we inherently want to say yes to. While these are all symptoms of a future-focused financial plan, they are not mandated, nor are they permanent unless you choose them to be. Tracking your spending is the first step towards understanding where your habits can tolerate change, or in some cases areas that demand it. This a great way to help boost your net worth if you practice discipline in transferring your formally spent dollars into saved ones.
Find New Sources of Income
Getting additional income can go a long way in your quest to improve your financial standing and overall net worth. Secondary streams of income can help you pay off debt sooner, maximize contributions to high-yield savings accounts or retirement funds, and reduce your overall need to borrow money from formal lending institutions. A new source of income does not have to come in the form of an entire second job, options like freelance work, selling items online, or working at random for ride share companies or food delivery services allows you to maintain control over your schedule while also collecting extra cash.
Store Your Money Where It Can Grow
The most financially savvy people know that regardless of how much you have in the bank, if the money you have is not working for you, then you are doing it all wrong. Avoid storing your money in savings accounts where it cannot grow or earn interest. Investing in stocks or keeping your cash in accounts that generate impactful interest percentages are two of the simplest ways to improve your net worth long term. Talk to your financial advisors or even the professionals where you currently bank to get an understanding of both the benefits and requirements that accompany moving your money into different categories or accounts.
Pay Off Your Mortgage
For homeowners, a mortgage is typically the largest outstanding debt that they must deal with. Since this debt is so significant, focusing on reducing or eliminating it as quickly as possible will result in greater overall financial health. Making bi-weekly payments is a common practice to accelerate your mortgage payoff. Keep in mind that your specific mortgage may have unique rules, and subsequent penalties, regarding paying off your balance ahead of schedule. Since a home can be both someone’s most valuable asset, and biggest liability, the choices you make about how to handle this responsibility impact your net worth from multiple angles.