Your net worth is simply a snapshot of your financial status. It all comes down to
what you have against what you owe. To put it bluntly, you are accumulating your net worth as you increase your asset side of the balance sheet rather than your liability side, and that's also the secret to achieving long term financial security. Here are
seven easy steps in building your net worth and managing your money for good.
Pay Off High-Interest Debt
The things that will drag the most on building your net worth are those with high
interest-credit cards, for example. You end up paying such huge amounts of interest rather than actually paying off what you owe, and it is for this reason that high-
interest rates ensure that a giant fraction of what you pay goes into interest rather than to lowering the principal. By this manner, you end up paying over time without putting much of a dent in lowering your debt.
Debt Repayment
Highest interest debt: Pay credit cards or personal loans that carry the high rate first.
Snowball: that is, repaying those that are smaller to create a rolling momentum, or avalanche, that is, tackle the debt carrying the highest interest**
Debt consolidation: You may look at some consolidation loans or balance transfer cards to reduce the interest rates.
Cut down Unnecessary Spending
Cut unnecessary expenses: Reduced unnecessary spending is most likely going to be one of the fastest ways of increasing net worth. Find what can be cutback and free up that money to be used towards saving and investing.
Cutting Expenses
• Make a budget: get to know where the money is going using a tool such as Mint or YNAB in tracking income and expenses
• Cut on subscriptions
• Subscriptions to cancel
• Think of streaming services and a gym membership. For the most part, chances are pretty good you recognized that you weren't taking advantage of some of these services; cut them.
• Cook at home. It costs an awful lot of money to eat out rather quickly. It's a bargain, literally if you cook dinners at home.
Invest in Appreciating Assets
The big money-makers, of course, are those assets that appreciate in value over
time and include the likes of stocks and real estate and bonds.
Investment Tips:
Maintain a diversified portfolio. Diversify your investments, as you put them in the mix of stocks, bonds, and other investments so you wouldn't risk everything on one premise.
Real estate investment: Investment in a property and simultaneously improve its value.
Invest regularly: In order to make steady investments regardless of any condition in the market, you can practice dollar cost averaging. It brings in more money to pay off debt, save, and invest-all things that increase your net worth.
How to Increase Income:
Start your side hustles: Give people private lessons, freelance, or start a small business earning you a significant amount.
Advance your education: You would become more versatile to jobs with some new skills or certification, and this would earn you more money
Save for Emergencies
Minimum emergency fund is the protection for your net worth. Without this, you are compelled to use credit cards or loans to cover the uncertainties of life, so your levels of debt will increase and your net worth will decline.
Building an Emergency Fund
Build it small: it is always recommended that you try saving at least three to six months' living expenses.
Automate your savings: Get rid of the frustration of forgetting to save the same
amount in your savings account month after month by making it through automating saving via automatic transfer from checking to savings.
Keep it liquid: If you put it into some easy-access, liquid savings account, such as a high-yield savings, you can keep it liquid and still make a pretty good return.
How to Track Your Net Worth
Use an App: There are some apps which effectively track your assets, debts, and net worth easily, among them being Personal Capital or Mint.
Therefore, it becomes quite crucial for the net worth to be monitored at least every
three months so that you can see how you are doing. Check once in each quarter. Do some tweaks, this could be checking and updating the budget or if your
investment strategy isn't cutting it, switch.
Conclusion
Other smart and disciplined financial steps include an increase in net worth. These efforts include a cancellation of high-interest debt, cutting back on unnecessary
expenses, smart investments, income boosts, and keeping of an emergency reserve, max contributions to the retirement plans, and tracking of your net worth pave the
way for steady growth of your financial resources and eventual long-term financial independence.
