If you think knowing your net worth is only important if you have millions of dollars in your bank account, it’s time to adjust your mindset!
Everyone has a net worth and everyone should know it, even you. While it’s not a number you need to constantly monitor, you want to be aware of it because it is a strong indicator of your financial health.
Allow this to serve as your net worth guide to help you understand your financial health and take the steps necessary to improve it.
Calculating Your Net Worth
Your net worth is simply the difference between what you own (assets) and what you owe (liabilities). Here is a simple tool you can use to calculate your net worth.
Examples of assets include:
- Bank account balance
- Investment account balance
- Vehicle value
- Value of your home
- Valuable personal property including jewelry, art, heirlooms, etc.
- Cash value of insurance policies
Examples of liabilities include:
- Mortgage balance
- Car loan balance
- Credit card balance
- Student loan balance
Is Your Net Worth Enough?
Whether your net worth is enough or on track varies based on your age and the quality of life you expect to have.
According to ListenMoneyMatters.com, the average net worth by the age of 30 is $6,676 and by the age of 40, the average net worth is $35,000.
Millennials are currently between 23 and 38 years old, so whether you’re on the lower or higher end of the age range, you now have an idea of where you are financially compared to others in your age group.
Keep in mind, these are average amounts. If you plan to live an above average lifestyle or below average lifestyle, your net worth should adjust accordingly.
How to Increase Your Net Worth
To increase your net worth, you have three options. You can increase your assets, decrease your liabilities, or do both. It’s that simple. The dedication it takes to follow through with meeting your financial goals is where most tend to struggle.
Here are 8 tips to help you increase your net worth:
Earn more money (and spend it wisely): Earning more money alone isn’t enough to increase your net worth. I’m sure you’ve heard of all the lottery winner horror stories and the successful entertainers and business people who’ve gone broke. You have to know what to do with your money.
If you earn more money and spend it wisely, you should be in good standing. However, if you spend it recklessly, your net worth won’t increase and in fact, it could even decrease if you put yourself further into debt.
Decrease your spending: It’s easy to spend your money on things that have no positive impact on your financial health. To keep this from happening, set a budget that decreases your spending on nonessential items and experiences so you can put more of your funds towards your future.
The only way this will work is if you set a realistic budget. It’s unreasonable that you won’t go out to eat or buy a new pair of shoes until you’ve reached your net worth goal. Being realistic about your money goals is the best way to be consistent.
Buy stocks: Buying stocks isn’t just for investment bankers on Wall Street and people who come from money. Anyone, from a blue collar worker to a high- powered attorney can invest in stocks and other investments.
While prices fluctuate in the short term, they are a solid long-term investment. With apps such as Stash and Acorn available, investing in stocks is more accessible than ever.
Take advantage of your 401K match: If you have an employer who offers a 401K match, you should take advantage of it. Otherwise, you are turning down free money. Look at your budget and see how you can afford to contribute extra to your 401K to ensure you’re taking advantage of every opportunity to have additional funds added to your retirement account.
Start a Roth IRA: Once you’ve met your employer’s 401K match, you should start a Roth IRA which is another type of retirement savings account. If you’re a business owner or work for a company without a 401K match option, you should focus on making the maximum contributions to your Roth IRA.
Have the right insurance: An expensive home repair, car accident, or natural disaster can easily wreck your finances. It’s important to have good insurance, so you are protected against unexpected financial mishaps. Also, remember the cash value of your insurance policies counts as an asset in your net worth.
Develop a debt payoff plan: Debt is the easiest way to reduce your net worth because it is a liability. While some types of debt are better than others (home mortgage vs. Macy’s credit card), you still want to focus on decreasing your debt overall. Whether you choose the snowball method, the avalanche method, or any other debt paydown system, consistency is vital.
Learn about money: Most people who are in a healthy financial state don’t achieve their status due to their personal knowledge alone. They read books, listen to podcasts, purchase online training courses, hire financial coaches and accountants.
If you would hire a personal trainer to improve your physical fitness or visit a salon to keep your hair healthy, you should take the time to learn how to improve your finances. It’s one of the best investments you can make for yourself and your generational legacy.
It’s easy to determine your net worth. What takes time is developing a plan to increase it. While you might not see results overnight, you want to make changes that will improve your financial health consistently.
A recent study found that by 2053, the median wealth of black people will fall to $0. Z-E-R-O. I know you don’t want to play a part in that taking place. Do yourself and future generations a favor by being serious about increasing your net worth.