Usually, when we think of net worth we think of millionaires and billionaires with enough worth to rival entire countries. First, it applies to you just as much as it applies to them, and second, if you focus on increasing your net worth now you could, someday, be a millionaire or billionaire yourself. Even Warren Buffet didn’t do it overnight, you know.
Your net worth, is your worth after you add up your assets and take out your liabilities - the things your money is definitely going to be spent on such as debts, loans and mortgages. If you’re ending each month desperate for your next paycheck because you’re out of money, then the first thing you need to do is to increase your net worth and learn some self-control.
There are six ways to increase your net worth:
1. Pay Off Your Debts
I know, this advice pops up nearly every time money is talked about, but it really can make a difference when it comes to net worth. The best time to try and wipe out your student loan debt is between the ages of 28 to 30, so you can start to put money towards building a retirement fund and saving up for rainy days and family.
Start with your large debts; the smaller ones can be consolidated in a way to lower interests and make them easier to pay off. Making a few extra payments, or arranging to make bigger payments so your big debts are paid off by a certain deadline will give you a goal to work towards and make you feel better in the long run- even if the loss of that money is painful in the short term. Also note that you should make sure to check whether there are any penalties for early repayment, and that it really does benefit you to do it; if the answer is still yes, then it’s better to leave your mortgage alone.
Do you really need to go out to a fancy restaurant every night? No, you probably don’t. No one is saying you should stop having fun - occasionally - but here’s an exercise for you: next month, write down everything you spend money on. Then take a serious look at it; did you buy the latest smartphone simply because it came out? Did you need that $200 handbag, or did you just get it because it’s the only colour you didn’t have? That money could have been saved towards your next $1,000.
As well as smaller expenses like nights out, reconsider how you approach bigger purchases, such as your car. Choose a reliable car over a flashy one and you’ll find that it lasts longer and requires less money to be spent on maintenance; car value also decreases faster than you might think, and your plan to sell it on in a year’s time might not be so profitable after all.
This is known as the difference between a paycheck mentality and a net worth mentality; unless you’re in a situation where you have to live paycheck to paycheck, you should be looking at your income as something to be saved and invested as well as spent. A paycheck is not a challenge to "spend all this money", it’s income for you to use wisely so you can put towards your net worth.
3. Increase Your Salary
It may sound obvious but if you can get a raise or some kind of bump in the salary you’re earning, could help you with increasing your net worth. This could be with starting a side freelancing career, or work hard towards a promotion. The catch is that you need to see that extra money as money to be saved, rather than an excuse to start spending more money; stick to your current lifestyle and save or invest the new money and you’ll soon start to see a difference.
4. Savings and Retirement
Your savings account should be just that: savings. Not money you’re trying to save, but you dip into every time you need a bit of extra. The more you keep aside, the more interest you’ll gain on it until it truly does save your life the day you need an emergency fund. It’s advisable to have enough to keep you going for six months to a year in the event that you stop working. Consider whether your company’s retirement offer really is the best thing and start your own retirement fund by putting aside 10% of your income every month, and between raises and interest rates it could add up to a tidy sum.
Aside from having "don’t touch" money in a savings account, investing is a good way that you can add to your income. Don’t go racing to the track, but consider smart investments that might give you less, but are safer in the long run, like stocks or bonds.
5. Talk to People
There are two kinds of "people" you can make use of here:
Friends. Especially if you’re younger, you might spend a lot of time on social media. Instead of posting a picture of your latest meal on Instagram, consider a Facebook or Twitter message asking your friends for their advice on good banks or financial advice; a more private conversation could be about their salary and how they handle their net worth, since younger people are more likely to be willing to talk about such things. Close friends of yours could even help you with your budget by advising you how to plan and pay for your expenses.
Professionals. You might find it difficult to talk to someone or ask for advice about your salary or your spending habits, but financial professionals are professionals for a reason; they can take a cold hard look at how you handle your money and tell you what you can do to improve your situation, including tax breaks you’re missing out on and how to budget better. Chances are you’ll already know which habits they’ll tell you to break, but maybe you’ll actually listen if it’s someone other than the voice in your head telling you to stop.
6. Get Another Degree
"Getting an MBA increased my salary by 80%!" is a claim you often hear when you start thinking it might be worth going back to school. Whilst this is not guaranteed, further education might help you both in increasing your income and networking-with experienced professors and your likeminded classmates, but you need to decide if this decision is right for you.
You need to consider the cost of tuition and the cost of the salary you’re giving up, against the money you’ll gain when you graduate. If, and only if, the money you would earn would be considerably more, and you can comfortably manage to get by while paying for tuition, then that degree might be the way to go. Upon graduation, remember to consider jobs that are not just your first offer or have an attractive salary, but jobs offering opportunities for advancement, a higher salary, retirement and other benefits.
It’s time to stop living paycheck to paycheck and start thinking about your future; an easier future with an increased net worth. Think smart and have a little less fun now, and your future self will thank you when you’ll have a great emergency fund, should the unthinkable happen.
Have you ever increased your net worth? Do you have a paycheck mentality or a net worth mentality? Let us know your own tips in the comments section below.