How to increase your net worth: 4 steps that anyone can follow and repeat to achieve a higher net worth. Pay debt, get assets, make more.
Net worth is an important financial measurement to understand your financial situation.
It tells the full story.
It measures your debt and assets.
You don’t just see the expensive tangible items, you see what’s on the other side.
Simply put, net worth is your financial health.
A high net worth means you have a surplus of assets that exceeds your debt.
In this post, I will look at how to increase your net worth in four basic steps that anyone can follow and repeat.
Let’s get right to it.
What Is Net Worth?
Net worth is what you are worth after subtracting your liabilities from your assets.
Net worth is the value of your assets minus your liabilities.
To know your net worth, simply add up all of your assets and liabilities.
Then, subtract your total liabilities from your assets.
For example:
Assets: $1,000
Liabilities: $500
Net worth = $1,000 – $500
Net worth = $500
Examples of Liabilities
- Credit card debt
- Credit line debt
- Loans
- Car loans
- Mortgage debt
- Student loan debt
Examples of Assets
- Stocks
- Bitcoin
- Bonds
- ETFs
- Index funds
- Real estate equity
- Businesses
How To Increase Your Net Worth
Once you realize how simple of a calculation it is, you can work on increasing your net worth.
Frankly, there really isn’t much to tell you about it.
There are basically four things you can do to increase your net worth:
1. Pay Off Debt
The number one thing to do to increase your net worth is to pay off your debt.
If you are completely debt-free, you have a positive net worth even if you have $1 in your pocket.
On the other hand, if you have a student loan debt worth $40,000, you need at least $40,001 to have a positive net worth.
Depending on the interest rate, your best course of action to increase your net worth is to pay off your debt.
2. Acquire Assets That Increase In Value
Once you have no debt or if you are a skilled enough investor to earn a higher return than the interest on your debt, you can acquire assets that increase in value.
To have a high net worth, acquiring assets is essential. No fortune was ever built by owning cash.
Inflation constantly erodes the value of cash.
So, to boost you net worth, acquire assets that increase in value.
This could look like growth stocks or buying a house.
Alternatively, you could acquire income-producing assets such as dividend growth stocks.
3. Save More Money For Investing By Spending Less Or Earning More
Besides paying off debt and buying assets, your only other option is to save more money.
If you save more money, you will have more money to pay off debt or to buy assets.
To save more money, you could either spend less or make more.
This could be accomplished by learning how to budget or by cutting out expenses.
Otherwise, you could apply for high-paying jobs or start earning side hustle by creating income streams.
4. Create A Business That Generates Cash Flow
If you are debt-free and you reached your max earning potential in your career, you could consider starting a business to increase your net worth.
If you have the skillset and enough interest to pull it off, your equity stake in a business could significantly boost your net worth.
The other way it could work is if you create a business that generates a lot of cash flow.
Because then you will have more cash flow to invest in assets that increase your net worth.
Either way, a successful business can skyrocket your wealth.
How To Increase Your Net Worth – Final Thoughts
It’s worth noting that net worth should not be viewed as a measuring stick.
Net worth is meaningless without a fulfilling life that you enjoy.
The goal should be to have the highest net worth for the lifestyle you want.
In summary, net worth is the value of your assets minus your liabilities.
To increase your net worth:
- Pay off debt
- Acquire assets
- Save more by spending less or earning more
- Start a business
Once you learn how to increase your net worth, you are well on your way to a healthier financial situation.
Just follow and repeat steps one through four until your desired net worth is reached.
Related posts
Net Worth Is Essential, But FI Seekers Should Focus on Income Streams + Low Expenses
Student Loan Debt: (11) Practical Ways To Pay It Off Quicker
How To Budget: 7 Simple Steps To Build a Successful Budget
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