Net worth is defined as your assets minus your liabilities. It’s the difference between the value of everything you own minus any outstanding debt. Your assets include everything you own of significance, such as how much equity you have in your house, your car, investments, and any other real estate you own. Your liabilities include the outstanding balance on your mortgage, car loans, student loans, and credit balances.
Every financial move you make should be made with an aim to increase your resulting net worth. To do this, you must either increase your assets or decrease your liabilities. Below, we’ll go over six simple ways to improve your net worth.
1. Analyze Assets and Liabilities
The first step to take on your journey to higher net worth is to analyze your assets and your liabilities. To improve something, you must first thoroughly understand it.
Analyze Your Assets
Your car is one of your assets that depreciates quickly over time. Once your car gets up to 100,000 miles, its value plummets even further. Consider selling your vehicle before it reaches that 100,000-mile plateau to maximize its value on the secondary market.
If you own two cars, consider selling one and trying to make it work with just one car. This will reduce your operating expenses of owning a car, such as gas, maintenance and insurance, as well as maximize the value of your vehicle before it drops further.
Take a look at your mortgage statement. Are you paying a rate higher than the current average? A quick Google search can show you competitive mortgage rates, and if your rate is significantly higher, you can likely refinance your mortgage and owe less in monthly payments.
You may also want to consider paying off your mortgage faster. By reducing the principal amount that you owe, the amount of interest you owe goes down with it. If possible, you could consider making two payments per month, with one payment going straight to the principal amount that you owe.
The other side of the coin is that, if you have a low interest rate on your mortgage, your money may be better off invested in the stock market, where the percentage of returns may be higher than the rate on your mortgage.
Analyze Your Liabilities
Understanding exactly how much you owe and where you owe it can help you to target the right debt to pay down first. Consolidating your debt could result in a much lower total interest rate than you’re currently paying on individual loans. Debt consolidation is a tried and true way to reduce your monthly bills and pay off your debt faster.
There are many different options for debt consolidation services available to you. The service you end up choosing will likely be tied to your credit score. Some companies cater to those with below-average credit scores, while others will have lower interest rates for those with good credit.
High-interest debt is the most significant factor that can stunt growth in your net worth. Tackle this area first before making any other financial decisions.
2. Review Insurance and Health Care Bills
Taking a look at how much you pay each month or each year for your various insurance payments be an easy place to reduce your liabilities. Usually, around the time that your insurance policy is up, you will receive numerous mail inserts from local insurance agents offering lower rates. No one likes getting junk mail, though, so you may be in the habit of throwing away each offer from an insurance company without taking the time to compare it to what you’re currently paying. If this is you, there might be a much lower rate available.
You may have been with the same insurance company for years and hadn’t considered switching. But after reviewing your policy and comparing it to new quotes, you may discover that you’ve been paying significantly more than you should be.
Health insurance is another place where you may be able to shop for a lower annual premium. Look over your current coverage and see if anything can be changed or adjusted that will reduce your payments.
3. Cut Your Expenses
It’s not the most fun exercise in the world to track your expenses and understand exactly where your money is going every month. But by tracking your expenses, you’ll start to realize that there are areas where you can cut back and keep more of your paycheck.
Many different free money management apps can help you with budgeting, tracking your expenses, and tracking your credit score. Take advantage of at least one of these free apps to know exactly where your money is going and what your net worth is on a daily basis.
4. Tax Advantage of All Available Tax Deductions
Like reviewing your expenses, taking a deep dive into your taxes is likely one of the last items on your list of things to do. But this time will be well spent if you want to increase your net worth. You may discover tax deductions that you didn’t know existed and had never taken advantage of before.
5. Maximize Contributions to Retirement Accounts
It may not feel like it’s improving your net worth to contribute $6,000 to your Roth IRA. But your retirement-aged self will be very thankful that you did after taking a tax-free withdrawal of an account that could have over $1,000,000 in it if you start soon enough.
6. Take Advantage of Your Cash
To grow your net worth, you need to be saving money each month. This could be something as simple as an automatic transfer of $100 to your savings account. Or it could be something more significant, like setting aside $500 each month to ensure that you can contribute the full $6,000 that year to your IRA.
Regardless of what your saving situation looks like, the money you put away for savings should be in a high-yield savings account. Some savings accounts offer incredibly low interest rates, while others can provide interest rates that approach 2% annually. If you have $10,000 in a savings account, this could mean $200 extra per year.