Are you trying to learn how to increase your net worth? If so, then there are a number of things that you can do to grow your assets and reduce your debt.
One of the most common mistakes people make is not thinking about how their current assets affect their future net worth. By controlling your spending, reducing debt, saving more and investing wisely, you can grow your net worth in no time.
In fact, there are many ways to grow your assets and improve your net worth. In this article, we will discuss proven ways to grow your assets and how they will help build up your net worth!
- 1 What is Net Worth?
- 2 Can You Increase Your Net Worth?
- 3 How to Increase Net Worth
- 3.1 1. Pay Off Credit Card Debt
- 3.2 2. Build an Emergency Fund
- 3.3 3. Pay Off Student Loans
- 3.4 4. Max Out Retirement Contributions
- 3.5 5. Live Below Your Means by Cutting Expenses
- 3.6 6. Pay Yourself First
- 3.7 7. Invest in Yourself
- 3.8 8. Keep Money You Have Saved In Places It’ll Grow
- 3.9 9. Buy Your Forever Car
- 3.10 10. Buy Your Forever Home
What is Net Worth?
Net worth is the total value of what you own, minus the total amount of debt. Your net worth is your assets minus liabilities.
The resulting figure is your net worth. A more nuanced view of the net worth involves looking at your liquid net worth vs. illiquid net worth.
Liquid net worth is the amount of cash, investments and other liquid assets that you have. Liquid in the financial world means readily able to convert into cash or cash-like instruments.
This compares to illiquid net worth, which looks at your non-liquid assets like real estate, rental property, a new car, retirement assets or other assets not readily accessible and convertible into cash and then subtracts the outstanding debt you hold.
Ignoring these liquidity concerns, you can look at your total basket of assets and how they compare to your overall debt burden. This will tell you your net worth.
Can You Increase Your Net Worth?
Absolutely. This article teaches you strategies to increase your net worth. Getting started sooner makes it easier to build your net worth later.
By using the formula above (Assets – Liabilities = Net Worth), you can begin to control your expenses, eliminate debt and grow your assets.
How to Increase Net Worth
The first step in building your net worth is to get rid of debt. Net worth is another term for equity or residual value, meaning assets minus liabilities. Therefore, lowering debt becomes a strategy to increase your net worth by realizing guaranteed returns on the interest you don’t pay.
This compares to the expected returns you earn on investments like stocks, real estate, or other assets you buy which earn a return.
One of the best ways to increase net worth is through smart investments. Buying a suitable car for your situation, a house you can afford or renting in a location that fits comfortably into your budget, and keeping extravagant expenses low all act as important steps.
Net worth doesn’t necessarily equate to rich. For some, having a positive net worth is a goal well worth pursuing. When we live with debt, the size of our net worth is often negative.
When people with high debt balances on a mortgage, student loans or credit card debt see their net worth go from negative to positive, they often have a reason to celebrate for turning debt into wealth.
The following pathways help you to build personal savings in a bank account, the market, housing and more while learning to manage your financial health and grow your wealth over the short term and long term.
Building your net worth is a process that could lead you to your magical number where you feel you have enough savings and funds built up to care for your family and not need to worry so much about the next time funds will come through the door.
1. Pay Off Credit Card Debt
Interest-bearing loans are a liability and can hurt your ability to boost your net worth. As you’re able, pay off all of your debt and ensure that no penalties are applied for early or frequent payment (as is the case with some mortgages).
The best ways to grow your assets and increase net worth include targeting debt with the highest interest rates first, then paying other debts off as you go.
Consolidating your debt through a lower rate personal loan to pay down high-yield debt is a time-tested strategy. It is possible to pay off debt, increase your assets, and grow your net worth. Have a plan for getting from A to B and manage your payments within your budget.
One of the easiest ways to grow your assets is by tapping into any extra savings or income you have and making an extra payment to reduce your debt burden.
Shed this debt fast and watch your net worth rise fast.
Consider using an app like Tally to accelerate your credit card debt repayment. Tally makes it simple to stay on top of your credit cards.
Tally works by scanning your cards and determining whether you qualify for a line of credit with a low APR. They’ll even help to manage all your payments.
The service doesn’t allow you to end paying late fees without gimmicks. Just a faster way to pay down your balances.
Related: Best Debit Cards for Kids and Teens
2. Build an Emergency Fund
An emergency fund is an account containing cash set aside to cover urgent necessities such as sudden health problems or automobile emergencies. But they can also cover expenses like:
- Home-appliance repair or replacement.
- Unexpected travel.
- Family emergency.
One way to grow your assets and increase net worth is to create an emergency fund that can help you stay financially afloat without having to rely on any other money, especially high interest debt from credit cards or expensive personal loans.
It is crucially important that you have an emergency fund of savings if you have debt, because it can help avoid taking out more loans.
One of the first things to do when getting out of debt is to not go further into debt. It seems simple and straightforward, but if you’ve got debt to your name, you know you don’t want it to be to your name. You want it gone.
So, how much should you have set aside in your emergency fund? It depends on your situation.
For simplicity, the best place to start is by setting a dollar target that proves challenging but not so much that you can’t ever motivate yourself to achieve it. If starting small, consider starting at a lower milestone like saving $500.
As you can afford to save more, work your way up and try to reach half a year’s expenses before contributing money toward your retirement.
Though, the right amount for you depends on your financial circumstances. It is a good idea to maintain enough assets to cover individuals living expenses for up to six months.
If your job or income earned by your family has less predictability (like you work as a freelance financial writer or in seasonal work) or proves harder to replace, consider having a bigger buffer saved in an emergency fund.
To manage any unexpected unemployment, you can utilize your savings to help with any necessary expenses and supplement any benefits provided by the government. Start small, but start.
One of the most basic ideas to grow your assets is having even $500 saved. This could help you out in plenty of tough financial situations.
If you don’t already have an emergency fund set up for you and your family, consider opening a high-yield savings account which you can easily access.
This might be through your existing bank but it could also be through an online-only bank like CIT Bank. That way, you can access it from anywhere and it remains separate from your daily banking activity.
CIT Bank has a Savings Builder product which offers competitive interest rates and can connect with many other financial institutions, allowing for easy transfers.
Having quick access to emergency funds is imperative in order to prevent circumstances from getting out of hand. Therefore, you shouldn’t tie up these funds in a long-term investment or something illiquid.
Though, the account shouldn’t be so easily accessed that it sits in the same bank account you use daily. Having it reside at a separate banking institution might avoid temptations to dip into your rainy day fund and depleting your financial reserves.
Having a savings account with a high-interest rate will make you money while you sleep and allow it to work for you. These accounts carry federal insurance up to $250,000, making the funds safe.
The money can earn interest, and you have access to your cash when needed whether through withdrawal or a fund transfer. Consider an online-only, high-interest savings account through CIT Bank to establish your emergency fund.
3. Pay Off Student Loans
Millennials and Gen Zers have a mountain of student loans to their names. The Federal Reserve estimated as much as $1.6 trillion in student loans exist today.
This number looks set to climb despite the temporary reprieve many borrowers received due in part to efforts from Presidents Trump and Biden for deferring student loan payments for all federal borrowers during the pandemic.
Many will begin repaying these loans this fall when the deferment ends, leading to the reemerge of the classic question of, “Should you invest or pay off student loans?”
In most cases, it makes sense to do both simultaneously. Borrowers should consider the rate of interest they currently pay and whether they think they can get a better return in an investment like the stock market.
You want to maximize your expected return on your money within your acceptable risk tolerance.
This will reduce what you owe on your student loans while also growing your assets through investments.
One way to reduce your interest rate is through refinancing your student loans. To bring down the costs of these loans, many have sought using refinancing options through services like Splash Financial, an online student loan refinancing marketplace.
The service pulls real-time quotes from several refinancing lenders in the market to give you a sense of the best refinancing option available to you.
My wife used a loan refinancing marketplace when her first round of student loans required payments to start and she dropped her rate from 8.00% to 2.85%, reducing her average rate by 515 basis points, saving us thousands in interest over the life of the loans.
By rapidly cutting what you owe and freeing up more funds to pay down the debt faster, you can increase your net worth quicker.
For those in a similar situation with high-cost student loans, consider using Splash Financial to find your best rate and lowering your cost of repayment. Depending on the savings you can receive, this guaranteed savings often makes for a wise financial decision.
Once young adults can put their student loans in good standing, they should turn to investing for the future and growing their net worth through their retirement accounts.
4. Max Out Retirement Contributions
Many private employers offer 401(k) retirement accounts that provide great tax advantages for saving and investing your money. For example, many employers have matching programs that will help you to grow your contribution and build wealth faster than you could by yourself.
You also have other tax-advantaged accounts available to you as well, such as Traditional and Roth IRAs, or individual retirement accounts.
Taking advantage of these accounts keeps money invested for the long-term through mutual funds, stocks and other investment options. It grows in value and builds your savings balance as you approach retirement.
Using these accounts saves you tax expenses and invests your income for the long term.
Use these employer-matched funds to upsize your retirement contributions and grow your income further by getting more money to save. By choosing to ignore such programs, you leave money on the table.
Retirement contributions serve two benefits. First, in the case of traditional retirement accounts, they allow you to defer your taxable income to your lowest earning years in retirement and second, act as a way to increase your available investment assets.
Achieving your retirement goals can be slowed by taxes. Taking action now will prevent this and help you achieve your goals quicker.
Start contributing to your employer-sponsored plan and consider investing in low-cost index fund mutual funds or even target date funds aligned to your desired retirement date.
These funds invest in stocks and bonds and transition the amounts you hold in each over time as you near retirement.
They automatically switch your savings goals from wealth accumulation to wealth preservation, de-risking your retirement assets and working toward providing you a retirement income.
You can invest in investment vehicles like these through your own IRA as well. Though, IRAs offer many more investment choices for you to consider.
Apps like M1 Finance offer you an all-in-one financial management experience, complete with access to an IRA.
You can set up recurring deposits which automatically invest in portfolios you choose as you contribute.
See this guide on M1 Finance Roth IRAs to learn how to set up your account and get started with your retirement investing today.
Related: Best Robinhood Alternatives
5. Live Below Your Means by Cutting Expenses
It’s not easy to maintain a lifestyle that doesn’t require much money. But you might end up with more cash if you’re willing to live on less.
Taking the first step toward living below your means (and possibly no longer hemorrhaging money) begins with making a list of your expenses.
Try to include everything from the things you spend money on every day, like food and transportation, to items that are only purchased once in a while.
Then, take time to consider the items on your list and determine if they’re necessities or luxuries.
Start small and work your way down the list of things that don’t make financial sense for you, from eating out at restaurants every day to buying clothes you don’t need. As you go, you’ll also need to reevaluate major money decisions in your life.
That’s because it’s not enough just to cut back on the little things, you have to be intentional about it and work your way up the expense categories.
Doing so will require a financial plan that accounts for your needs and wants while still giving you some leeway in terms of what luxuries or indulgences you can afford.
No matter how good your intentions are when trying to live below your means, you’ll need conviction to make the hard changes necessary to spend less.
Remember, living on less than you earn can be a great way to build your net worth and prepare for the future.
You might think living below your means is impossible, but by making a concerted effort little by little, you can manage your expenses and leave more money for debt repayment or saving.
6. Pay Yourself First
Leveling up your decision to live below your means involves paying yourself first.
Pay yourself first means that you set aside money for your future before you make any other financial moves.
It’s not an easy feat, but if you can start with small changes like canceling unused memberships or making a standing order to put funds away in savings on payday it’ll get easier the more committed you are.
There will be opportunities to increase your savings as you grow and progress in your career. Though, that doesn’t mean you should delay saving more now.
Rather, the earlier you start to pay yourself first through higher savings and contributions to your investment accounts, the more time you’ll allow compounding returns to work for you.
Compound interest occurs when you earn not only on the initial investment but also its accumulated earnings from previous years (or months).
You can also work toward building passive income streams by, for example, investing in real estate, buying income generating assets and the best investments or starting a side hustle.
Look here for a full list of passive income ideas.
7. Invest in Yourself
One way to pay yourself more first is through investing in yourself. You may have heard of it before, but the best investment you can make is in your own education.
This could mean pursuing more rigorous job training programs or paying for a certification course through a company like Udacity to improve your skill set and grow into higher-paying positions with better benefits.
Flipping this equation around, if we invest in ourselves first then money will flow into our checking accounts quicker.
It is also important to invest in our health. This can happen by taking care of your body and mind with regular exercise, nutritious food, sufficient sleep for the individual and their family members, relaxation techniques like meditation or yoga as well as mental wellness practices that include therapy sessions when necessary.
These investments will help grow net worth by living longer and enjoying the life you have. You can also consider giving financial gifts or even how to gift stock if you’ve earned enough and want to help out someone you love.
8. Keep Money You Have Saved In Places It’ll Grow
You may already have a savings account because you’ve got an emergency fund with enough set aside to cover at least three to six months of expenses. But are you using it?
Your checking account should have a balance that covers your regular spending and everything else should be in an interest-bearing bank account earning you returns. Even better, invest what you can.
Even if you’re saving for yourself in a mattress in your bedroom (figuratively), that should not be your long-term goal. You want that money to turn into more money.
Further, resist the urge to spend a windfall. Invest it so you will continue to benefit in the future.
Most people tend to be risk averse, so consider investing in index funds instead of trying to pick stocks yourself. Although, by choosing to add individual stocks to your portfolio, this can open your returns up to higher potential.
If you don’t know where to look, consider subscribing to one of the best stock picking services or signing up for an investment newsletter to learn about stocks.
You can learn how to research stocks and perform stock analysis to uncover growth companies worth investing in for the long-term.
One service worth considering is Motley Fool’s Stock Advisor. The subscription recommends investing in “Steady Eddies,” or companies that perform well over long-periods of time and deliver consistent returns.
These serve as a strong foundation to a diversified portfolio and can deliver you solid returns over long periods of time.
9. Buy Your Forever Car
It is a sure bet that any car you buy today will be worth much less in one year’s time. That’s the case in almost every situation, save perhaps the period immediately following the pandemic.
Cars depreciate rapidly as you drive them and rarely act as physical things that appreciate in value. Add in maintenance costs, insurance premiums and operating expenses (gas) and you have an understanding of the true cost of owning a car.
Every time you buy a car, it inevitably leads to a decrease in your net worth. Buying a car means you will be paying interest and depreciation over the course of that vehicle’s life. Purchasing vehicles only when they are necessary can significantly reduce these financial penalties.
10. Buy Your Forever Home
Buying a home often represents the single largest purchase you’ll ever make. While there are many different strategies for spending your money, buying a home is generally considered one of the most sound investments you can make in terms of increasing net worth.
The reason it’s so powerful has to do with leverage and return on capital: A person who buys a house usually puts down 20% or less of the purchase price as cash, while borrowing 80% from a lender.
Over time, the home price should appreciate in value and generate equity.
The home’s value is leveraged by the homeowner who typically pays less in interest rates and has more time to pay off the debt than a renter, which means they get an improved ROI on their investment.
Additionally, homeownership may also help you build wealth and income by treating part of it as a rental property. You can rent out rooms or even purchase a separate property to treat as rental property and earn extra money.
Regardless of your intended use, by purchasing a forever home and living in it for many years, you can build equity for when you later in life decide to downsize and take out the equity for retirement.