Your net worth is defined as your total assets minus your total liabilities (including loans, loans and mortgages). A positive net worth means your assets exceed your liabilities, and a negative net worth means you have more liabilities than assets. One way to measure your net worth is your net worth, and one of the biggest indicators of financial health is a positive (and growing) net worth. Here are 4 steps to help you build your wealth and increase your net worth.
track your progress
It may seem strange to be the first step to increasing your net worth in order to build wealth and track your progress. You haven’t done anything yet, so is there really anything to track? The fact that just the act of tracking your progress will work wonders for keeping up with your motivation. A quote sometimes referred to as Pearson’s law and at other times by author Thomas S. Attributed to Monson, says:
“When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates.”
Calculate your net worth, and then write it down. If you feel comfortable, share it with your friends and family. Then set a reminder to track it regularly – each month is a good cadence to look back and analyze how your finances fared during the month. As you follow the remaining steps to building wealth, it will be amazing to look back and see how far you have come.
Eliminate (Most) Debt
When you start tracking your net worth, the next most important step is to take a look at your debt and create a plan to eliminate most of it. There are several debt elimination strategies with which people make it easier to eliminate debt. One is the debt snowball, where you put all your extra money toward your debt with the smallest balance until it’s paid off. Another is the debt avalanche or loan blizzard, where you instead start with your loan that has the highest interest rate.
Any strategy can work, but whatever strategy you choose, have a written plan for how you’re going to get rid of your debt. Debt has a huge impact on your net worth, and eliminating the debt will make a huge difference to your net worth. Once you get rid of your high-interest debt, such as credit card debt, you can stop and consider whether to pay off your mortgage or student loans early. Each approach has advantages and disadvantages, so weigh the pros and cons and make the right choice for yourself.
Cut expenses (and save the difference)
Another big step towards building wealth is cutting down on expenses. Take a look at your budget and see if it’s something you can cut through each month. But don’t just eliminate an unnecessary expense—make sure you transfer that money to a separate savings account. Making extra money from a side hustle is another great way to build wealth. Again, you want to make sure that (if possible) you set aside any “extra” money from your budget and invest it for the future.
invest in property appreciation
Once you have a budget and are living below your means, a solid emergency fund and then some extra money to invest in, make sure you invest in appreciating assets. Appreciating assets are those whose value is likely to increase over time. Property appreciation includes:
- Stocks, bonds and mutual funds
- Real estate (either your own primary residence or an investment property)
- precious metals such as gold and silver
- Self – You are your greatest asset, and it is almost always a good idea to invest in yourself through more education or training.
The biggest example of a depreciable asset is a car. While you may need a car to go to work or live your life, most vehicles lose some of their value every day. Investing a lot of money in a car that is more expensive than you need is rarely a solid financial option.
Making a conscious decision to take steps to build wealth and increase your net worth puts you ahead of many others who are wandering in day to day life. A good first step is to track (and share) your net worth – fortunately, Mint makes it easy to view and track your net worth over time. Next, work on eliminating any debt with higher interest rates. This will pay immediate returns since terminating a loan, with a 24.99% interest rate financially equivalent to getting a 24.99% return on your money.
Look for ways you can cut expenses, or make extra money through a favor. But don’t put that money in your regular checking account — save it in a separate account and invest it to grow your net worth. And once you have money to invest, make sure the majority of your investments are in appreciating stocks, mutual funds, real estate or own assets. Before you know it, you will be on your way to an ever-increasing net worth.
If you are ready to start being deliberate about your finances. Here are 4 steps to build wealth and increase your net worth.