What could be more important than increasing your net worth to solve your problems and build generational wealth? To calculate your net worth, subtract your liabilities from assets. If assets are higher than liabilities, you have a positive net worth. The good news is that it’s easy to increase it.
Growing your net worth rids you of the anxiety of not having money. It enables you to pass your wealth onto your family and grants you the pride of financial freedom.
You can take simple actions to build wealth.
Tip 1: Pay off debts
The borrower is a slave to the lender. Having debt means you go to work every day to pay someone you owe. Even worse is that some people never jump off that treadmill, so they find other reasons to take on more debt. It’s impossible to have financial freedom if you’re in debt.
The ideal scenario is not to get into debt. A simple rule to avoid debt: if you can’t pay cash, you can’t afford it. Some people will object to that and say, for example, they can’t afford to pay cash for a home, so a mortgage is justifiable. However, other options to home ownership exist, including a rent-to-own agreement. Other options that limit your risk and avoid the debt trap also exist. The biggest advantage of a lease-option agreement is that you won’t have debt if you choose not to buy the home after the lease expires. With a mortgage, you’ll still owe the balance if you’re unable to continue payments.
If you are in debt, start the process toward becoming debt free by paying the smallest debt first. After paying it, use that money to pay off the next debt. Paying off one debt will boost your confidence and motivate you to pay the rest. Not having credit payments means you’ve got money to save and invest.
Tip 2: Reduce your expenses
The fastest and most effective way to have more money at month-end is by decreasing your expenses. Getting a raise or finding a higher-paying job takes time. But you can reduce your expenses right now.
Compile a list of your expenses. Determine the bare essentials. Food is a priority, but you can cook at home and not eat out. You don’t have to smoke or have a Netflix subscription. Those aren’t essential to your survival.
Speak to a consultant about using tax laws to lower your bill. Paying the consultant could be worth the amount you’ll save on reducing taxes. Find out how to reduce your insurance and medical expenses. The Centers for Medicare & Medicaid Services published data that revealed consumers could save about 40% of monthly premiums because of enhanced tax credits passed in the American Rescue Plan Act of 2021.
Paying off debt and increasing your income can take months or years. But reducing expenses is a quick fix. Because money management is a habit, reducing your expenses conditions you to spend less. That conditioning enables you to save the extra money you’ll get when your income increases.
Tip 3: Grow your savings account
You know about planning for rainy days. Unforeseen expenses pop up when you least expect them. Your income isn’t guaranteed, but expenses are. How much should be in your savings account?
Experts recommend holding three to six months of expenses in your emergency fund. Ideally, be in a position to cover a year’s expenses. That’s not a long time. You could lose your job, and you may need months to find another one. The recent pandemic lockdowns lasted for more than a year in some countries.
Treat your savings account as an emergency fund. That money isn’t a reward to spend because you did a good job accumulating it. It’s strictly for emergencies. As an example, use savings if insurance doesn’t cover your repairs, or you stop receiving an income.
The larger your savings, the more time you have to delay being broke.
Choose a savings account that earns interest. Depositing money into a compound interest account (interest that earns interest) enables you to grow the savings account quicker and earns passive income.
To resist the desire of dipping into your savings, you might try depositing money into an account that penalizes you for withdrawing it before the agreed period.
Tip 4: Invest
Paying off your debt, decreasing your expenses and increasing your savings result in the growth of your net worth. But you don’t want inflation to cancel that growth. That’s one of the reasons you need to invest. The other reason is that investments ensure you don’t work until your last day if you don’t want to.
Investing grows your money, prepares you for the future and allows you to retire. If you don’t make money while you sleep, you’ll work for the rest of your life.
You can invest in various ways. Paying off your house and funding your retirement account are investments. Investing in the stock market enables you to receive dividends (profits companies pay to shareholders) after purchasing shares. The shares’ value can increase, enabling you to sell for a profit.
Investing in a retirement fund such as a 401(k) or Traditional or Roth IRA entitles you to tax advantages. Some employers offer matching benefits to grow your contributions faster. Whatever investment you choose, make sure it’s protected. Invest in stable companies that have been around for a long time. Use reputable brokers.
Tip 5: Increase your income
Rich and financially secure people have multiple streams of income.
They don’t rely only on one salary or profit from a single business. Individuals who grow their net worth own multiple businesses, have two jobs or strive for sales growth and promotions/raises. Having multiple income streams means that you’re not dependent only on one source. With multiple streams, you ensure that you receive an income if one stops being a source.
- Get a second job and work at night or on weekends.
- Have a garage sale to rid your home of unnecessary possessions.
- Rent your spare room.
- Rent your car or driveway for parking.
- Write a book or sell products online — potential passive income.
Growing your net worth by increasing your income works only if you don’t spend the additional portion made. With money, what matters is how much you keep, not how much you make.
When Should You Start Building Wealth?
The younger you start building wealth, the more you can make. Time is a critical factor when planning for retirement. It’s easier to accumulate a million dollars by retirement age if you started at age 20 than it is a few years before you retire.
If you haven’t started building wealth, begin today. Take the easiest step by reducing your expenses. The fastest way to build wealth is by incorporating all the methods mentioned above, simultaneously.
To know exactly what age you should start, determine how much money you need to be comfortable and at what age you should have it. Set a realistic amount you expect to save every month. Take your ideal net worth amount and divide it by monthly savings. That’ll give you the number of months to accumulate your desired wealth. Subtract that from the age you wish to achieve wealth to know when to start.
Advantages of Growing Your Net Worth
Think about how good you’ll feel when you don’t owe anyone money. Owning a home and not having debt gives you a good start on retirement. The fewer expenses you have, the more you can dedicate to splurging or donating.
Having a high net worth enables you to leave your family the money that will help ensure their comfort. Increasing your net worth boosts your confidence and grants you the gift of self-pride.
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Frequently Asked Questions
What is the fastest way to increase your net worth?
Reduce your expenses. Instead of waiting to increase your income or pay off debt, you can grow your net worth by getting rid of unnecessary expenses. It’ll require you to lower your living standard, but reducing expenses is a quick fix.
What are the ways to increase net worth?
Pay off all your debts. Lower your expenses. Grow your savings account. Invest your money. Earn several income streams to avoid dependence on a single source. Ask for a promotion/raise or look for a higher-paying job.