How do you know if you’ve made it? You don’t need a sprawling Malibu mansion like some of the biggest celebrities. But if this isn’t a yardstick for financial success, what is?
The answer is in your net worth. This little metric reveals your value beyond the cash in your pockets. It gives precious insight into your current financial situation, letting you know whether you’re on track or lost in the weeds.
What is Net Worth?
Generally speaking, companies tend to use this metric to understand their financial health at any given time, but individuals can use it to check-in on their personal finances, too.
You can sum up net worth with the following equation:
New Worth = Your Assets – Your Liabilities
To find out yours, you’ll have to add up all your assets, including cash in checking and savings accounts, stocks in specialized investments, and property.
Subtract from this total all of your debt, including installment loans, lines of credit, and mortgages.
Ways to Boost Your Net Worth
Did all this number-crunching reveal you have a low net worth? Don’t worry — you aren’t alone, and it’s something you can grow. Here’s how:
Focus on Lowering Your Debt
Your debt has a seesaw relationship with your net worth. The more your debt rises, the lower your net worth plummets — and vice versa. This means you’ll see your net worth flourish if you can lower how much money you owe.
See what you can do to funnel more cash towards these debts — whether it’s an online installment loan or student loan — by sitting down with your budget to find out what you can cut. Any spending you manage to eliminate frees up cash you can put towards your debt
For the most immediate results, consider focusing on the cash loan with the lowest outstanding balance. Pour the extra cash you unearthed in your budget towards this account while remembering to pay at least the minimum payments on all your other balances. This keeps these other accounts in good standing while you double down on your target.
Once you clear this debt, roll the cash you would be spending on its payments onto the next smallest cash loan. Keep doing this until you systematically wipe out your debt
Don’t Forget to Save
A balanced budget does more than focus on your debts. It also evens out your finances by making sure you’re stockpiling cash.
You should set it up so that you have multiple savings accounts.
Account #1 — Emergencies
One account should be for squirreling away cash for a rainy day. Without an emergency fund, you may have to check out online installment loans at www.MoneyKey.com. But with a well-stocked fund, you may not have to rely on installment loans to get by.
Account #2 — Pin Money
Another facet of your savings should be liquid cash you can use to improve your home, take a vacation, or simply splurge on something fun.
Account #3 — Your Future
You should also consider long-term savings to help you achieve big goals, like buying a home or retiring. These tend to go untouched for several decades, so you can capitalize on the interest.
Pay Attention to Your Interest Rates
The interest rates you pay or earn play an important role in your finances. With an installment loan or mortgage, you want a low rate, so you pay less for borrowing money online. But for savings and investments, you want to go as high as possible. It helps you get the most out of your cash, especially in long-term scenarios.
If you’re able to snag a high interest rate, you may be able to offset the effect of inflation. Inflation drives up the cost of goods by 1–3 percent each year. Without an equivalent interest rate on your savings, the money you save will lose value over time.
Socking away savings in high-yield interest accounts is the only way you’ll get one over inflation while building up your net worth.
Just make sure you do your research. Sometimes, you have to keep a minimum balance for a specified length of time to lock into higher rates. If you plan on using savings for emergencies that may crop up unexpectedly, you need an account that allows you to access this cash without penalty.
Grow Your Investments
Low debt and well-balanced savings are the hallmarks of good money management. But if you truly want to up your net worth, you’re going to have to look into proper investments. It’s the only way you can capitalize on big returns and reinvest them to grow your assets.
If you don’t already have investments, this is a daunting next step for your finances. Don’t rush into anything; taking your time will help you pick the right investments for your needs.
Start by going online to research your options. Set up an appointment with your bank to talk about mutual funds or bonds if they offer these services. Talk to friends and family to see how they invest their money.
There’s a lot to learn, so try to get information from as many different sources to get a balanced view of your options.
Take a Slow and Steady Stance
Rushing through your financial decisions may feel good at first. Being in a hurry makes it seem like you’re doing more, after all, but it won’t have the same long-term effects on your finances as a slow approach.
Because let’s be honest, it takes time to take control of your debt and save wisely. Even if you cut out all spending except your essential needs, you may not have enough cash at hand to pay off an installment loan, let alone all your other debt at once. Things like this may simply take time.
So take it from the tortoise — of the tortoise and the hare fame. Going slower may feel like you’re doing less, but you’ll eventually come out on top.