Your net worth is one indication of your financial well-being. It’s the value of your assets after subtracting your liabilities. While you might know what your favorite celebrity is worth, you might not have a clue as to your own net worth. Increasing your net worth can be a good financial goal to strive toward. Need some assistance? Check out these seven ways to get started.
Find out now: How much do I need to save for retirement?
1. Calculate Your Net Worth
Before you can raise your net worth, it helps to know where you stand now. To find your net worth, you’ll need to add up your assets. Your assets include things like the amount of money in your investment, savings and retirement accounts, the market value of your home, your car and other property you own, plus the money you have in your checking account.
Next, add up your liabilities. You’ll need to include what’s left of your student loan debt, your mortgage and your personal loan debt. Don’t forget about your credit card debt and your medical debt. Then you’ll be able to calculate your net worth, which is equal to your assets minus your liabilities.
2. Focus on Eliminating Debt
If you’re not happy with where your net worth currently stands (if you have a lot of debt it might currently be negative), one way to bump it up is to reduce your debts. There are many different debt payoff strategies that you can implement. You can get rid of the debt with the highest interest rate first or consolidate your debt.
Playing around with a calculator can show you how long it’ll take you to eliminate your debt. For example, if credit card debt is one of your biggest burdens, you can use a credit card calculator to see how chipping in a little extra will make a big difference in the long run.
3. Find Ways to Cut Back
Anyone who’s serious about getting out of debt and saving more will need to start spending less. You don’t necessarily have to give up everything, but something is probably going to have to go. Substituting an expensive pastime for one that’s cheaper and splurging on just one or two things at a time can make it easier to stick to your budget and achieve your financial goals.
4. Fill Your Retirement Accounts
Part of your net worth depends on how much you’ve saved for retirement. So taking the money you would have spent on a day trip or a new gadget and sticking it into your 401(k) or your IRA is another way to increase your net worth. The government sets contribution limits each year, so it can be a good idea to try to get as close to those limits as you can. For example, for tax years 2015 and 2016, you can contribute up to $18,000 in your 401(k) if you’re under 50.
Check out our 401(k) calculator.
5. Mind the Mortgage
If you’re a homeowner, you can increase your net worth by building equity. Your home equity is the percentage of your home that you own. You can set up a plan to pay off your mortgage faster in order to increase your equity. You can do this by paying more each month, or making an additional payment each year. It’s important to make sure your mortgage doesn’t have a prepayment penalty before you start paying extra.
6. Try to Lower Your Interest Rates
When you first took out your student loans, your credit might not have been that great. If you’ve kept up with your monthly payments over the years, however, you might be able to qualify for a better interest rate. Contacting your lender to see whether you can refinance those loans and your other debts might be a good idea. If you can reduce the interest rate you’re paying, you’ll pay less over time and more quickly boost your net worth.
7. Adjust Your Tax Withholdings
It might feel good to get a huge tax refund check in the spring. But you could be doing yourself a disservice by paying more taxes than you need to each pay period. If your net worth needs a boost, changing the number of allowances you’re claiming can put a little extra money in your pocket to put towards other things (retirement, paying down your mortgage, etc.).
To adjust the amount of tax that’s being withheld from your paychecks, you’ll need to fill out another W-4 form. The more allowances you claim, the less income tax you’ll have withdrawn from your pay. So if you’re single and you only have one job and zero dependents, claiming two allowances instead of one will increase your take-home pay. Just be sure not to claim too many allowances, or you could end up owing the IRS some money come tax time.
Related Article: A Guide to Filling out Your W-4 Form
The Bottom Line
While you might be a long way off from having a million-dollar net worth you can gradually raise your net worth if you can put your energy into saving more, increasing your cash flow and knocking out debt.
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