Have you ever thought about your financial condition in terms of net worth? Net worth is essentially the difference between your total assets and liabilities. It can be positive, negative or zero. Many people never actually calculate their net worth and just go with the flow. While this strategy might work for some, it isn’t the best decision to take. Not knowing and monitoring your net worth could easily be the biggest block on your journey to wealth maximization.
If you want to know how to grow your net worth, then you’ve come to the right place; here we explain some ways that can help you accomplish that.
When you subtract your liabilities from your assets, you get your net worth. Let us explain in simpler terms: calculate and add the value of everything you own: your house, investment accounts, retirement funds, checking accounts, running balance, etc., and subtract from the grand amount all your liabilities such as credit card debt, mortgage and everything else. Net worth is a crucial number to measure and track. If you have determined your net worth, the next obvious question would be how can you grow it?
Most people assume that to increase their net worth they just need to make more money. However, it’s also about decreasing high interest debt, which are your liabilities. Liabilities come in the form of credit card debt, auto loans, housing mortgages, student loans, etc. It would help if you worked towards paying off debts, starting with the ones that have higher interest rates. A general thumb rule would be to clear all your credit card dues, followed by personal loans because these tend to have the highest interest rates.
Now that you’ve understood your liabilities, understand your assets as well. Sit down and make a list of the assets you own and once you have them on paper, calculate their present worth. They can be your home(s), bank balance, stocks, bonds, collectibles, etc. Now think about which assets have given you maximum appreciation or income incase of rental properities. Do you understand these assets better than other assets in your portfolio? If yes, then try to commit more capital to such assets.
One way to maximize your assets is by buying rental property; this is beneficial in many ways. First, you get extra money coming in every month, generating a source of passive income. The value of your asset also increases if bought the right way.
One of the most important activities in growing net worth is by simply measuring it by writing it down. Once you have written down numbers, it is much easier to know where to move the needle.
An ever increasing net worth is a good measure of your skill in asset allocation. If this subject interests you then find out step-by-step process on how to turbo charge your net worth in the book ‘You, Money and Family’ by Vijay L.
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