by Christy Bieber | Aug. 10, 2019
Your net worth is a great measure of your personal wealth and you want that number to grow over time. But how can you make that happen?
Net worth is simple enough to measure and tells you a lot about the state of your finances. Your net worth is the value of your assets -- all the stuff you own -- minus your liabilities or debts. The good news is, your net worth isn't static -- it changes over time. And you can increase it by taking steps to acquire more assets and decrease your liabilities.
Having a high net worth cushions you from financial setbacks because it means you have money to fall back on or assets you can sell to generate cash. A high net worth is also essential if you want to achieve financial independence.
If you're not sure how to increase your net worth, there are two simple steps to take: pay down your debt, and invest in assets that increase in value.
To understand how to increase your net worth, you first need to understand how to calculate it.
First, add up the value of all your assets. This could include:
Basically, you want to try to add up how much everything you own is worth. Use the current market value for your vehicles, home, and property rather than what you paid.
Then you need to add up all of your liabilities. This is everything you owe or any outstanding obligations you have such as:
Finally, subtract the sum of your liabilities from the value of your assets. So if everything you own is worth $100,000 and you owe $150,000 in loans, your net worth would be -$50,000 ($100,000 - $150,000). But if everything you own is worth $500,000 and you owe a total of $200,000, your net worth would be $300,000 ($500,000 - $200,000).
Once you understand how your net worth is determined, it's easier to see what you need to do to grow it.
There are only two ways to increase your net worth:
Of course, doing either of those things is easier said than done. But there are ways you can work on both that will really help your net worth to grow as quickly as possible.
To increase the value of your assets, you can:
To reduce your liabilities -- and so reduce the amount that you have to subtract from your assets when calculating your net worth -- here are some steps to take:
Once you've begun taking steps to grow your net worth it's a good idea to track your progress. You can maintain a spreadsheet with estimated values of your assets and with a list of your liabilities that you update periodically. Apps such as Mint get you to input the details of your financial accounts and other assets and then use that info to track your net worth for you.
Tracking your net worth can help you stay motivated to pay off debt and grow your assets because it provides a way to physically watch that number gradually rise.
The sooner you put these methods for increasing your net worth into action, the sooner you'll start seeing positive results. You can work on growing your assets by increasing your income and making smart investments, and you can work on reducing your liabilities by creating a debt payoff plan and putting extra money toward your debt. It will take time, but it's well worth the effort as growing your net worth increases your wealth and makes you much more financially secure.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2021.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from Bank CD rates editorial content and is created by a different analyst team.
Best CD Rates service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.