The Ultimate Formula to Improve Your Net Worth

While ordinary people are always concerned about the numbers in their checking accounts, saving accounts, and retirement accounts, the wealthy individuals are improving their net worth. If you are conversant with the Forbes list of the richest individuals on the planet, you will know that the most important criterion for wealth is net worth.

What is Net Worth?

Net worth measures the difference between what you own and what you owe. It is the difference between your assets and your liabilities. Assets here include every valuable thing you own like stocks and other investments, retirement funds, checking accounts, home values, as well as the values of other important things in your portfolio.

Liabilities, on the other hand, include everything you owe like mortgage, credit card debt, and others. You will get your net worth when you add all your assets and minus all your liabilities. That sounds simple, but you need to really know what your assets are and the true values of your liabilities.

How Can You Improve Your Net Worth?

Now that you clearly understand what net worth is, you can consciously improve your net worth by taking some important steps. There are five major steps that constitute our ultimate formula for improving your net worth, and we will discuss each briefly:

Review Your Liabilities

Understanding your liabilities is the first step to improving what you are worth over time. A detailed look at your liabilities should include a review of all debts you currently owe and your financial obligations. The prominent items on the list should include your mortgage, loan repayment, and credit card debt. When you review what you own, you should identify those that you can offset quickly and reduce your liabilities. You can consider refinancing high-interest loans or credit cards.

The faster you reduce your liabilities, the faster you can improve your net worth.

Review Your Assets

You will also need to review your assets to get a clear picture of your financial situation and understand how to improve your net worth. It can be a little difficult to get the correct value of your assets, but you can get a close estimate by looking at what you owe and getting their true value of assigning fair monetary values to them. The prominent items you should have in your asset column should include primary residence you own, vacation and rental property, investments, and collectibles like art, jewelry, vintage cars, antiques, wines, and the rest. You can also include your balances in checking and saving accounts.

Cut Down Your Expenses

When you spend less, you will have more money. The money you can retain in your balances accumulate in net worth. While incomes improve your net worth, expenses reduce it. Ultimately, your net worth will keep getting better when you earn more and spend less.

Pay Off Your Mortgage and Other Debts

Mortgage is mostly the biggest item in the liability column of most people. If this is your case too, you can improve your net worth quicker by paying off your mortgage faster. You can make big payments or increase the frequency at which you pay. Consult your lender to know your options. You should also try to get other debts off your books as fast as possible. When you have less debt, your net worth will automatically get a positive nudge.

Invest More

Your investments are significant parts of your assets. The more investments you make, the bigger your net worth will become. Another good thing about investments is the fact that they yield extra income. When you have more money coming in, your spending power will increase. You can save more or invest more. Both choices will boost your net worth.

From what we have discussed here, you can see that there is no magic formula for boosting your net worth. There are significant things that can happen in your life and change your fortune, but such occurrences are rare. The best thing to do is to adopt a proven strategy. The five-step formula we have discussed here is the most reliable way to improve your net worth legally.