It’s imperative for every adult to know his/her net worth and how to maximize it. The knowledge will not only go a long way in helping to makes some critical financial decision, but it will also put you in the know with regards to your financial success or failure.
Knowing this information will also help you take active steps to improve your financial position. Net worth is the primary way to determine the value of a person or a company. This is because it sums the entire amount of money that has been invested since the inception of a firm and also the revenue that has been generated since the beginning of the investment. Furthermore, Net worth can be used as a scale of measurement to determine the creditworthiness of a company or an individual, which is very important in contemporary times.
You will find it very difficult to secure a capital from either financial institutions or local money lenders to start up a business of your choice or grow your existing business if you aren’t worthy of credit because of a low credit score. Although improving your net worth may sound like a difficult task to many, you will find everything falling quickly into place with the right guidance.
This post will highlight a few tips to help you boost your net worth. However, before proceeding to highlight the tips to increase your net worth, I will briefly explain what the concept entails. It can be referred to as net assets, shareholders’ equity or owner’s equity depending on whether the subject of the discussion is a person or corporation. The net worth of a person or a company is the difference between total assets and total liabilities.
In other words, it’s the difference between the value of your total assets such as retirement funds, checking account balance, the market value of your house, investment accounts, automobiles, other properties, and your total liabilities, which may include debts, loans, mortgages and much more. Having a clear grasp of your net worth is the best thing you can ever do for yourself as it will help you know where you’re lacking thus creating room for improvements.
Calculate Your Net Worth
The first step to take towards improving your net worth is knowing the figures involved. It will only take a moment to calculate your net worth. As already mentioned above, you need to sum up your entire assets on the one hand and your total liabilities on the other hand, and then minus the latter from the former.
The figure you get after this is your net worth. Do not feel disappointed if you thought you’re worth more than what you got as you can quickly boost this figure within a short period. Experts believe that you’re already half way there just by knowing your net worth.
Cut Back On Spending
If you want to improve your net worth and settle your debts, then it’s best to trim and minimize your spending. It’s not easy to trim your expenses, most people have a hard time with this, but the end will justify the means. When you first start cut backs, go easy and take things slow.
You can’t grow your net worth from $100,000 to $1 million in a day. Carefully look at your expenses and cut back on areas that are less relevant to your well-being thereby will not make a big difference when reduced or eliminated. You will find your financial goals crashing if you make big decisions that you’re unable to contain. Slow and steady wins the race.
Pay Off Your Debt
Reducing your debts is another step in a positive direction, this is because debt can make a significant difference on the final figure you get when calculate net worth. If you’re not pleased with the current situation, then it’s probably time to focus more on clearing your debts. Start by paying off high-interest debts either by increasing your monthly payments or by consolidating payments.
It’s recommended to also pay off smaller debts in the process. This will go a long way in helping you achieve your financial goals. Make a payment plan and follow it. If you aren’t clear on the strategy to adopt, you should consider talking to an expert who may shed more light on effective debt payment strategies.
Pay Off Your Mortgage
Just like debts, it’s important to focus on paying off your mortgage(s) but unlike loans, paying off too early may have an adverse effect. However, making payments will take a massive chip off your list of liabilities. Since the law of diminishing return doesn’t apply to most real estates, owning the house you live in would be one of your most significant financial achievements in the nearest future.
This is because you can boost your net worth by building a home equity. Investigate the rules of your mortgage and check if the mortgage company have prepayment penalties. If not, you can pay more monthly or annually to pay off quickly and improve your homeowner equity.
Review Annual Expenses
After calculating your net worth, it’s important to fish out the expenses that weighed most on the final figure. You should start by determining their importance and whether their elimination will make a negative impact on your life or not. It’s important to start with these big chunks as you will quickly notice the difference on your net worth once they’re removed. Pay careful attention to your insurances and interest rate and then device a means of cutting it down to a minimal level.
An essential way to improve your net worth is to put your money in a place where growth will take place within a specified period, which brings us down to investments. Keeping your money in a safe box will not help it grow nor will investing blindly. When it comes to your assets, you have to make wise decisions. Investment is a wise decision, but it will only be profitable if done correctly.
Conduct a research and then choose the best company/product that offers the best returns within a short period. The reputation and track record of the company or product should also be carefully considered. Meanwhile, it’s recommended to seek the guidance of a professional if you aren’t sure which investment type is best for you.
Save For Retirement
Saving for retirement is another step towards achieving your financial goals thus boosting your net worth. This is because the amount you’re able to save up for this period is also part of your net worth. This invariably means that if you’re ready to cut back on expenses today and save for your retirement, you’re taking active steps towards improving your net worth.
Although the amount you can save up for your retirement annually will be limited by the contribution restrictions set by the government, it’s advised to try as much as you can to get close to these limits. Many employers offer competitive retirement plans to their employees as well as matching programs that are targeted to aid them to boost their contributions within a short time frame. Taking advantage of these programs will go a long way in increasing your net worth.
Go For Durable Automobiles
Durability should be your watchword when procuring automobiles or other assets that are prone to wear and tear. These are your investment, and so, it’s recommended to invest quality time and resources into purchasing the best quality that will serve you for a long time. You don’t want to be seen running to the market every couple of months in search of another automobile. The cost of purchasing automobiles will have a significant impact on your net worth if it’s added or deducted.
Talk To An Expert
Many individuals are ashamed to open up to a financial advisor or an accountant only because of the state of their finances. There is no shame in seeking help when you need it. If you don’t know of a better way to boost your net worth, you should consider talking to an expert. You will be able to get help for your unique issues if you open up and tender your concerns to the professional.
Reduce Your Interest Rates
Lowering your interest rates could contribute significantly to your financial success. You can do this by reaching out to the financial institution or the lender from whom you secured the loan and inquire whether there is any way through which you can refinance your loans and reduce your debts. If you do this, you will be allowed to pay less within a shorter period thus boosting your net worth.
In conclusion, it’s important to be patient as your net worth will not improve overnight. Creating a brilliant plan and adhering strictly to it is the only way to build your net worth.