Many people measure their financial success by taking a look at their income. However your net worth is a greater indicator of financial success. When it comes to living a financially prosperous life you have to think about your net worth more so than your income. Your net worth consists of your assets such as your home, vehicle, jewelry or checking account. Upon taking a close look at your net worth, you may come to the realization that you need to improve it. In today’s guide we take a look at how you can do just that.
1) Reduce Debt
The interest that you pay on outstanding debts, could be put to better use to increase your net worth. Therefore, most financial experts suggest that you should eliminate all of your debts, as soon as you can. In the same breath, you should also become more aware of the penalties you may face for paying off debt early such as your mortgage. The key thing to remember is that you should focus on high-interest debt first. Another thing you can consider is to consolidate your debt by getting a loan at better rates to pay off high-yield debt. Making extra payments can also help to reduce your debt.
Paying off smaller sized debts such as credit card debt is much easier than paying off major debts like an auto loan or mortgage. In some instances these major debts may take years to pay off. One of the ways you could pay off major debts sooner is to switch from a monthly payment plan to a biweekly payment plan. This can help you to pay off the principal faster as well as to lower the amount of interest you’ll have to pay.
2) Establish A Budget
The concept of establishing a budget may seem unimportant but the reality of the fact is that money that you waste on a monthly basis could be allocated to increasing your net worth instead. This is why it’s highly recommended that you establish a monthly budget and reduce your monthly expenses. One of the first things you can do is to make a list of all the essential expenses that you make on a monthly basis and identify areas which are nonessential such as entertainment. You may come to realize that you could save an abundance of money by making minor changes such as to dine out less or to shop less frequently. Be sure to also check recurring expenses for miscellaneous things such as streaming subscriptions or storage facilities. For instance, canceling a cable subscription that cost over $120 per month, in exchange for a Hulu subscription can literally save you over $1000 over a period of 12 months.
3) Additional Sources Of Income
An additional source of income helps to drastically increase your net worth. Not only will a new source of income help to pay off your debts faster, it can also help to negate the need to borrow at all. One of the ways you can acquire a new source of income is to invest. Once you establish a budget and decrease your spending on non essential services/products as well as to reduce your debt, you’ll be in a much better predicament to invest. The type of investment you should pursue varies because every individual is different, so the type of investment that you should pursue is based on you. Some of the most common types of investments that people make include:
- Stocks, ETFs and Mutual Funds
- Real Estate
- Bonds and Treasury Securities
- Precious Metals
4) Maximize Your Assets
Just like how it’s essential that you evaluate and reduce your monthly expenses, you need to take a closer look at your assets too. The key areas you should focus on are: investments, property, collectibles and other assets. One of the easiest ways you can maximize your asset is to see if your company provides a 401k plan. If they do, chances are that they’ll match your investment in the 401k plan to a certain percentage. Most experts suggest that you should invest as much as you can into a 401k plan as long as your company matches it. In the event that you work for a publicly traded company, you may have employee stock plans as well. Another way you can maximize your assets is to establish a savings account. Even though they have been regarded as being one of the simplest investments one could make, they don’t grow as fast as other types of investments. The key thing to remember in this regard is to invest your money into programs that consist of high average growth rates.
Your collectibles and property all have value. One of the things you can do is to work with a team of professionals who can assist you when it comes to determining what your assets are worth now, as well as what they’ll be worth further down the line. For instance, your home’s value will increase over time, while your vehicle may decrease over time. It’s highly recommended that you consider selling assets that depreciate over time. You can use those funds to increase your net worth.
5) Get Help From A Financial Advisor
There are several things you can do to easily increase your net worth. A more simple approach to doing this is to increase your assets and decrease your liabilities. Even though this may sound like a tedious journey, financial advisors can help to simplify the entire process. A financial advisor can assist you when it comes to developing a comprehensive financial plan which focuses on increasing your net worth as well as to help you prepare for retirement. It’s also worth noting that financial advisors are extremely resourceful when it comes to formulating a budget, reaching short or long term goals, insurance planning, tax optimization and investment risk management.