What Is Your Net Worth?
When we’re talking about increasing one’s net worth, it’s important to understand precisely what the concept of net worth entails. Essentially, net worth refers to the difference between the value of what you currently own—your residence, your retirement funds, investments in mutual funds, bonds, insurance policies, and your bank balance—while subtracting liabilities such as loan payments, credit card dues, mortgages, and taxes. Net worth is an important metric of your financial health, as it helps you keep a tab on just how much your debt can weigh in on your future wealth. Taking stock of your net worth can also help serve as an excellent indicator of areas you need to focus on before retiring.
While many people assume that calculating one’s net worth is tedious, it’s actually quite simple. All you need to do is take stock of everything that you own—including assets that you will be incorporating into your retirement portfolio—such as stocks, investments, property, gold, insurance policies, and so on. The next step is to make a separate list of outstanding payments that you owe, such as loan instalments, credit card bills and such, and then subtract that amount from the sum of everything that you own, and that gives you your net worth.
If you’ve sat yourself down and crunched the numbers, then you probably know your rough net worth by now. Surprised? Proud? Disappointed? Don’t worry about it—if your net worth is below your expectations, or you want it to be higher, here are a couple of simple fixes to boost your financial standing:
Take Stock of Your Assets
Often, we're kind of clueless about how much our assets are generally worth. While the value may keep changing, especially in the case of gold and property, you can always get an approximate figure. Just remember to take stock of every asset, and don’t miss a single one. If you’re unaware of the different types of assets, here’s a quick list of classes:
Primary Residence – the more your house is worth; the more your net worth is going to be.
Vacation Home – apart from your residence, properties such as a farmhouse, or a vacation retreat are also a form of residence and are a sizeable asset in your portfolio.
Investments – these come in the form of stocks, bonds, mutual fund investments, retirement plans, and so on.
Gold – when adding gold as an asset, remember to calculate its value at the current rate for a more accurate net worth figure.
Collectibles – these can be in the form of art, antiques or other curios of significant financial value. While the value of these items on the market may vary, you can always ask an appraiser for help.
Pay Off Your Debt
Money that you owe to a bank is also money that you can use to increase your net worth. The essential idea here is to pay off all your debt as soon as you can. It is crucial to identify and pay off high-interest debt first, before moving on to lesser debt. The bottom line, in this case, is to be aware of what you owe and plan for how you intend to pay it back at minimum cost.
Minimise Your Expenses
We’ve all heard that we spend too much at some point in our life. Whether it’s shopping too often, eating out, or picking up the latest iPhone as soon as it’s been released, these expenses often come calling every once in a while. However, we spend money on small expenses on a daily basis, which in the long run can add up to a significant amount.
What you can do to prevent this is a simple hack—monitor expenses on a daily basis for about a week, or even a month, and then take stock of how many expenses are frivolous. That daily cappuccino on your way to work? It turns out, it is pretty expensive. While treating yourself is essential once in a while, remember that you’re still spending money. Once you’re aware of your regular spending patterns, you can analyse spots where you can afford to make adjustments.
Another important thing to remember is credit card debt. Bear in mind that while you aren’t technically paying out of your pocket, you’re still going to be paying the amount you spent, plus interest when the amount on your credit card is due. Cutting down on your card and relying on cash for everyday expenses can go a long way.
Try To Make More Money
More often than not, cutting down on expenditure isn’t enough to boost your net worth. In such a scenario, the best way to increase your net worth is to find opportunities to earn more money. Working two jobs, freelancing, teaching over the weekend, taking up consultancy based projects and so on can help increase your income.
The more money you make, the more you can save and invest, which then further boosts your net worth. The nifty bit about having a second source of income is that you can directly add it to your savings, as you don’t need that amount for living expenses.
Invest, Invest, Invest
While reducing expenses and making more money are simple fixes, these are merely the first steps you’ll take. Once you’ve gotten into the habit of saving on a regular basis, you’re ready to invest and put your money to work for you.
While the wide world of investments can seem tough to navigate, it doesn’t have to be that intimidating. Sometimes all you need is professional advice in the form of a financial expert who can offer you sound financial advice based on your financial standing. Once you’ve taken stock of your options, you can start to invest at a risk level that you’re comfortable with.
What to Remember
While increasing your net worth isn’t something that happens within a few days, if you put in a fair bit of planning, effort and thought, you can reap the benefits for the rest of your life.