When it comes to our financial health, there are plenty of numbers that we’re concerned about, but the one number that can quickly tell you how well you’re doing is your net worth. Your net worth is the total value of your assets minus your liabilities. This number can help you determine how your debt is impacting your wealth as well as help you decide where to focus your next financial goal.
No matter where someone’s net worth falls, there is always room for improvement. Here are seven steps that you can take today to help you increase your net worth.
1. Review your liabilities: How much debt are you paying off each month and what type of debt is it? This should include your mortgage, second mortgage, credit card debt, auto loans, student loans, etc. You need the full picture on what you owe others.
2. Review your assets: This is where I find net worth tracking tools particularly helpful because they oftentimes can automatically update information that changes regularly such as your investments or checking account. If you’re not comfortable with using an online tool, you can use a good old fashion spreadsheet or pen and paper to arrive at a number. The main asset classes include:
- Investments – This includes any tax-deferred retirement plans along with traditional brokerage accounts that hold stocks, bonds, ETFs, etc.
- Real Estate – This includes your primary residence, vacation property, raw land, and rental property.
- Collectibles – These are typically art and antiques, so the value for these items will fluctuate. An appraiser can give you a more accurate current value on these pieces.
- Business ownership – It can be difficult to value a closely held or private business. However, for many business owners and entrepreneurs this category is your greatest asset. Be realistic about the “salability” of the business. Business valuation firms or business brokers can be a great resource for pinpointing a value.
3. Trim your expenses: There is rarely a case when a family can’t cut down on their monthly expenses. Do you have unnecessary magazine subscriptions, gym memberships, excessive utility bills, etc? See where you can trim back or rein in your spending, even in small ways, to help your net worth grow throughout the year.
4. Reduce your debt: This step can do tremendous things to your net worth. The less debt you have the greater your net worth. The best way to approach this is by identifying your highest interest debt and paying that debt down first. You can also consider consolidating payments or simply increasing your monthly payments.
5. Pay off your mortgage: While some people consider mortgages “good debt,” owning your home outright can be your biggest asset while eliminating your largest liability.
6. Review your annual costs: Do you have annual costs that are bringing your net worth number down? Do you have any unnecessary annual costs? I suggest you take a look at things like your insurance and healthcare premiums each year. Compare rates to see if any of your annual costs can be trimmed down.
7. Invest: I’ve written before about the power of compounding, so I won’t harp on it here. However, a great way to grow your net worth over time is to have you money working for you. For an in-depth directive on my investing principles, pick up a copy of my book, You Can Retire Sooner Than You Think.
Following the above steps will give you a picture of your current net worth, and hopefully also direct you on how to increase it. There are also a variety of online tools available that you can use to automatically track and update your net worth. My personal favorite is Wela. I added my financial accounts, and now Wela is able to show me the up-to-date amounts in each account and automatically calculate my net worth. You can even add the Zillow estimate on your property. Using tools like this allows you to easily and regularly check on your net worth and hopefully help motivate you to continue to improve.
Read the original article here.