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Today we want to show you how to grow your net worth. Because a high net worth is a good indicator of healthy finances.
And we know you want healthy finances. Because you wouldn’t be here otherwise, right?! So let’s talk net worth: what it is and how to grow it.
What Exactly Is Net Worth?
Net Worth is basically just a way to measure wealth. If you take the value of everything you own then subtract everything you owe, you’ll find your net worth.
This is an important indicator of your overall financial health. Instead of just asking yourself how much money you have right now (which means nothing if you owe thousands of dollars on credit cards, student loans, and car payments), you’re getting a more complete picture by taking both your assets (valuables) and your liabilities (debts) into account.
With that lil’ intro done, we can get to the fun part…how to grow your net worth!
How to Grow Your Net Worth
Since your net worth is all about comparing your liabilities to your assets, there are really only 2 ways to grow your net worth:
- Decrease Liabilities, or
- Increase Assets
It’s that simple!
Now you just need to know how to decrease liabilities and increase assets.
How to Decrease Liabilities
Decreasing liabilities basically just means pay down your debts.
But there is a trick to it. If you want to increase your net worth as fast as possible through paying off your debts, start by focusing on your debt with the highest interest rate.
See, when you have a high interest rate, a good chunk of your monthly payment goes toward paying that interest. Which means less of your payment is used to repay the actual loan amount. That’s why high-interest debts (like credit cards!) are so dangerous. You can make payments for months, or even years, and still owe almost as much as you owed on Day 1!
If you need a little help figuring out how much to pay on each of your debts to make the biggest impact on your net worth in the shortest time, check out our Champagne Waterfall post. It will give you a customizable plan for making your debt payments cascade through all your debts as quickly as possible.
And with your high-interest debt under control, you’ll be able to turn your attention toward increasing assets.
How to Increase Assets
To grow your net worth through increasing assets, you just need to buy (or even create!) things of value. Bonus points if you can acquire things that will become more valuable in the future. That’s the secret to growing your net worth effortlessly.
And there are lots of ways to do it! Here are a few of the most reliable assets you can acquire to grow your net worth.
1. Index Funds
Index funds might sound like a fancy pants investment, but they’re actually one of the easiest assets to buy and manage.
An index fund is like a sampler box of a bunch of different stocks or bonds. So when you buy a share of an index fund, you’re actually buying little pieces of stocks from a bunch of different companies.
Here’s why index funds are brilliant:
- Because they are sampler baskets, they are automatically diversified; if one stock plummets for some crazy reason, you still have all the rest to help absorb that loss.
- They are passively managed, so the fees are super low. And the fees are paid out of the balance of your account, so you don’t get a bill you have to pay out-of-pocket.
As with any investment, there is some level of risk, but as long as you’re in it for the long-term, index funds are firmly on the safer side of the risk scale. Index funds just follow the market, so when the market’s up, they’re up, and when the market’s down, they’re down. In the short-term, this could be a little risky because the market always fluctuates, and you might need your money on a day when the market happens to be down. But if you can let the money sit while the market corrects itself, you’ll be just fine!
That’s why I love index funds for my retirement account. Automatically transferring money from my checking account to my retirement account, and automatically using that money to purchase additional shares in my chosen index funds boosts my net worth without me lifting a finger!
And since that money is set aside for the long-term (because I certainly don’t want to pay any penalties for taking early withdrawals from my retirement account), I’m not going to be spending that money on impulse buys. My retirement savings and net worth will continue to grow on auto-pilot without any interference from me. In just the last 5 years, this investment has grown my net worth by $79,623!
2. Real Estate
Real estate is my favorite trick for how to grow your net worth.
Want to see this net worth growth in action?
I bought my first fixer-upper in 2012 at the very bottom of the market for $395,000 (even then LA real estate was pricey!), and my second house in 2016 for $485,000. Now, I certainly couldn’t afford a 20% down payment on those, so I took advantage of FHA loans and only put 3.5% down. So my home loans were $381,175 and $468,025. Yeah, I took on $849,200 of debt…but here’s the thing…
Those houses are currently worth an estimated $728,000 and $572,000 respectively, for a total value of $1,300,000. And since I’ve been paying down the debt, I only have about $773,000 left on those debts (lol, only).
So thanks to these 2 investments, my net worth is up $527,000!
Oh, and I get some rental income every month, my renters are paying down my debt, and I get a few tax breaks as well. Real estate is where it’s at!
If you can time the market so that you’re buying when the market is low, your net worth will skyrocket as the real estate market recovers. But what if your real estate market is strong? Should you buy at these prices?
In most markets, the answer is yes, you should still buy. Even if the prices in your market are high, and even if they dip below your purchase price at some point in the future, most markets will always rebound and will continue to increase in value over the coming decades.
You just need to make sure you can afford to wait for the market to rebound if it dips. You don’t want to be forced to sell when the property is worth less than you paid for it. That’s called a “short sale”, and it can create big problems with your credit and your finances.
And if you can see that you’re in a dying market (maybe the primary employer in the town closed and people are migrating away from there), then you may want to steer clear of real estate investments in that market. In fact, you may want to move yourself to a market with more economic opportunity. It’s gonna be tough to grow your net worth in that market.
3. Your Own Business
How is Jeff Bezos’ net worth over 132 BILLION dollars when he makes a comparatively modest $80,000 per year?
It’s because he built a pretty big asset. An estimated $125 Billion of his net worth is Amazon stock.
Of course your business doesn’t have to reach Amazonian levels to boost your net worth. Many small businesses, and even blogs, have value because they can be sold.
I’ve actually had a few offers from people looking to buy this blog from me. So this blog is boosting my net worth! I can’t give you an actual number since I haven’t had this blog valued. It might only be a couple thousand dollars, but it’s something! And, when paired with my other businesses (like my content writing business, real estate blog, and Etsy shop), my net worth is getting a substantial boost! While simultaneously bringing in income! It’s a win-win of the best kind.
And it’s easier (and cheaper!) than ever to start your own business. You can start your own service business for just the cost of a website (like $200 if you DIY). Check out How to Start a Side Hustle in Under 2 Weeks to see how it’s done. Then turn that hustle into your own net-worth-boosting business.
Resources
If you’re ready to get serious about your finances, here are a couple of my personal favorite resources for learning more about how to grow your net worth:
Smart Women Finish Rich by David Bach (my single favorite book on over-all personal finance for women)
The Millionaire Real Estate Investor by Gary Keller (the book that taught me how to buy real estate)
Happy reading and happy growing.
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