Increasing your overall net worth can give you the sense of accomplishment and financial security that you’ve always wanted. Net worth is essentially just a combination of all of your assets; including your savings accounts, investments, home, etc. By increasing your net worth, you’re working to decrease your debts and free up more of your money to do whatever you want with it. Here are five money rules to follow that will help increase your overall net worth.
1. Save Early, Save Often
How big is your savings account? A few thousand dollars? A few million? Did you know that there are millions of Americans who have little to no money in a savings account? Savings accounts (especially a high-yield account) can be incredibly beneficial, no matter what your financial standing is.
If you find yourself out of work or in need of a new vehicle ASAP, a savings account will cover the sudden expense. Would you be able to afford your current lifestyle if you were out of work for a few months? If you answered no, you’ll probably want to start an emergency fund.
Once you’ve saved up 3-6 months’ worth of expenses for emergencies, you can start investing in a long-term savings option, and even start funding your retirement through an IRA or 401k account. Long-term investments and savings collect interest over the years, boosting your overall net worth and the original value of the investment.
2. Pay Extra on Your Mortgage Each Month
The earlier you pay off your house, the better. Your mortgage is probably somewhere in the $1-4,000 per month range, depending on the overall cost of the house and the loan. Over the lifetime of your mortgage loan, you’ll pay back a significant amount of interest to the bank; making that house even more costly than it originally was.
In a relatively short period of time, you’ll serve a two-fold purpose by paying extra on your mortgage payments: you’ll be paying off the mortgage early, and you’ll be increasing your net worth by tens of thousands of dollars. If you pay an extra $500 per month on your mortgage, you’ll be increasing your net worth by around $6,000 within the first year; and $30,000 within the first five years. Plus, you’ll be among the minority of Americans who pay off their mortgage early and enjoy no house payments for the remainder of their lives.
3. Make Smarter Investments
Increasing your net worth means making smarter investments with your money to generate more cash. You want your money to work for you, not the other way around. This is why it’s so important to include a professional (like a financial advisor) in your plans. The expertise of a financial advisor can help you make smarter investment decisions to maximize returns and minimize risk.
There are plenty of income-generating assets that you can invest in; from real estate to dividend-paying mutual funds, to small businesses and more. Investing your money wisely ensures you’re taking the right amount of risk for a more secure reward. While no investment can be absolutely, 100% guaranteed, there are investments that are much more secure than others.
If you’re looking for financial advice, the web has plenty of information on the top financial advisors in the business. You’ll be able to filter out advisors by location, expertise, and cost.
4. Remove Bad Debt from Your Life
Paying down your debt should be the number one priority in your life, as debt only serves to reduce your overall net worth and make it more difficult to increase it. Bad debt especially has a negative impact not only on your financial health, but also your credit report and score.
Bad debt comes in the form of credit cards, personal loans or payday loans, and even vehicle loans. Yes, even your car loan is considered bad debt for the simple fact that the car lost much of its initial value the minute you drove it off the lot. Cars are a depreciating asset; meaning over time, they lose value rather than gain it.
Credit cards are often used to purchase other items which are also considered to have depreciative value. Electronics, clothing, and other items that most people rack up credit card debt to obtain don’t hold their value over time; therefore making the initial cost and the overall interest rates that accompany credit cards a bad idea.
Removing the bad debt from your life will free up your cash flow and reduce the overall debt you owe; therefore increasing your net worth and (let’s be honest here) reduce your stress levels as well. Who wants to pay 30% interest on a t-shirt anyway?
5. Cut Expenses
The last rule you’ll want to follow for increasing your net worth is cutting expenses. Anywhere you can, you should be cutting expenses by as much as possible. Cancel subscriptions you no longer use, refinance your mortgage for a better rate, or even get a better quote for insurance. The less money you have going out each month, the higher your net worth will be.
Once you’ve saved money on each of these expenses, you can reinvest that cash back into your retirement vehicle, savings account, or income-generating investment. Increasing your net worth is all about taking control of your money and deciding where it goes.
Remember these five money rules for increasing your net worth, and you’ll be well on your way to paying down debt and living the financially secure life you’ve always dreamed of. Whether you’re planning to retire to the sunny beaches of California, or just want a happy, secure retirement in your home state, increasing your net worth an eliminating debt should be your top priority.