Helping Ordinary People Be Extraordinary With Their Money
7 Ways to Grow Your Net Worth Today
Wealth can be measured in many ways.
One of those ways is your net worth.
Your net worth is not a measure of your worth to people, your worth to society, or a measure of your worth to your family and friends. Net worth simply applies to your monetary wealth, and is a matter of the following basic formula: Assets - Liabilities = Net Worth. It's not rocket science, arbitrary, or something that people pull out of the sky. Net worth is the total value of all of the stuff you own minus what you owe.
At 29 years we were in the hole by a negative $30,000. We owed $50K in student loans and $10K in consumer debt from cars and credit cards, and more. We had a $30,000 mortgage on our house, and it was worth about $30,000. In terms of assets, we had close to $30k in assets and all of it was from my Missouri Teachers Retirement Fund.
Today, twenty years later, our net worth is just over $550K, and growing steadily. In the next 5 years, our goal is to be at $1M, and we are on pace to get there. I say that to say, that If we can do it, you can do it too!
In this blog post, I want to share with you 7 things we did to reach this level, and encourage you to do the same. I want to challenge you to take a hard look at your own net worth, and I hope that it will encourage you to build and increase your net worth also.
Check out the video at the end of this blog post for the Average Net Worth of a 40 Year Old
So here are 7 things you can do, today, to build your net worth.
1. Buy a house and put it on a 15-year mortgage OR refinance your current mortgage to a 15-year mortgage. Here is a quick illustration to show you the power of a 15-year mortgage. We purchased our home in 2005 and put in on a 30-year mortgage. From 2005 to 2014 the principle that we owe went down only $13,000 in those 9 years. In 2014 we refinanced our home on to a 15-year mortgage.
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From 2014 to 2020 the principle that we owe went down $44,000 in 6 years. We gained 3 times the equity in the house in two-thirds of the time. If we had originally had the home on a 15-year mortgage, the home would be paid off today. However, we weren't smart for the first 9 years of the mortgage, and we are paying for that mistake now.
If you don't do anything on this list, do this! In fact, if you want even more growth from real estate, buy a rental property or two to hold. Rental properties appreciate in value also, and they add to your net worth too. You will reap the benefits down the road, trust me. You can thank me later!
2. Invest in your jobs retirement plan, at least up to the match, and pursue other investments tied to the stock market. Whether it's mutual funds, ETF's, or Index funds, you need to be doing it. I'm not a fan of single stocks, unless you are a professional, but one way or the other, you need to be in the market. Stock market participation is easiest if its automatic and you don't see the money, so having it come directly out of your checks is perfect.
Secondly, the company match is "FREE MONEY". Never leave free money on the table. If you just invest in the match, you are doing a whole lot more than most people.
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Next to home ownership, participating in the stock market is by far one of the primary things that separate the haves from the have nots.
3. Reduce your debt and other liabilities. OR get out of debt as soon as possible. If you want to really have a tremendous effect on your sanity, your peace and joy, and your liabilities side of the equation, then you need to strongly consider a plan to pay off your debt.
Perhaps you can sell some things, cut up the credit cards and don't accrue new credit card debt, or simply decide to never get another car payment again in your life. But somehow, some way, you need to seriously take a long hard look at your debt and attack it instead of ignoring it a hoping it will magically disappear. IT WON'T!
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Debt and loans kill your net worth. Yes, you can borrow money and hope to get wealthy from it, but for 99.9% of us reading this, it doesn't work that way. Yes, it's possible to pay off your debt. Yes it's possible to live debt free. Don't fall into the trap that other peoples money (OPM) is your key to wealth. As Dave Ramsey says, "you can't borrow your way to wealth".
Personally, we've learned our lesson and we've been on a debt free journey for quite some time, and I'm glad to say that we are getting close. There will be a blog post coming about that journey. Stay tuned for that one!
4. Take care of your health. What good is money if you are in poor health and can't enjoy it. You net worth takes time to grow, and you get that time by taking care of yourself. Exercise, eat cleaner, walk regularly, get plenty of sleep, manage stress, and value your physical, mental and spiritual well-being.
Again, net worth is not just about the money, but it's also about your overall well-being. If it means eating less, changing your grocery shopping habits, or utilizing the gym that you paid the membership for and never use, you've got to do something constructive about your health and your body.
Yes, your children and grandchildren will benefit from all of your monetary hard work, but it's nice for you to be able to be here to enjoy some of it too!. Much of your wealth is predicated on your health!
5. Have an Emergency Fund and be prepared for emergencies. The more you have aside to manage emergencies, the less you ever have to slow down or stop your investing. Emergencies will happen. Ok, I hope you are getting this....I said "emergencies will happen". That is automatic and there is absolutely nothing you can do about it, regardless of how hard you pray, how good you look, how much money you make, or how nice you are to other people.
Emergencies happen to everybody, anytime, and at any costs, so you have to be prepared. There is no way around it. If you aren't prepared for an emergency, it will rock your foundation. If you are prepared to deal with an emergency from a net worth standpoint, then you will be rocked, but your foundation will remain intact.
People borrow from their 401(k) when there is an emergency. People go out and get a loan from a Payday lender when there is an emergency. Don't do any of this. Just start planning now for an emergency so you can be prepared, because it's coming, and it can rob your assets side of the equation, or attack your liabilities like gangbusters, when it happens.
6. When you make more, spend the same. In other words, keep your expenses low. This sounds like a very easy principle, but if it was that easy, everyone would be doing it. Sad to say, but most people have a tendency to spend more when they get more money or a raise on their job.
If you managed this one correctly, it would regularly give you more disposable income to invest with and increase the asset side of your net worth equation with ease. The point here is just because you make more does not mean you have to spend more. Try to keep your expenses the same over the course of 5, 10, and 15 years (other than the natural rise of inflation).
Yes, there is inflation, but inflation is not the only thing eating up your assets side of the equation. Your decisions matter. Be conscientious with your spending as your salary, or money in general, goes up.
7. FOCUS ON NET WORTH. Today, take out a piece of paper and on half of the paper, make a list of all of your assets and write next to each one what you think it is worth based on current market value. Be careful here because it's easy to over value an asset. If anything, underestimate it. On the other half of the same paper, write down all of your liabilities, and do the math. Do you have a net worth, or a net loss?
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For some of you reading this, you have a negative net worth (net loss). If you follow these 7 steps, and every 4 months, take the time to re-visit your Net Worth equation, you will be surprised at how you can increase your net worth. Put it on a spreadsheet, if necessary.
The point here is to focus on it, apply some energy, some time, some thought, and some intensity in this area of your finances. Stop worrying so much about your salary and start putting the the work and the effort to grow your net worth. You will be shocked at the results.
These are things you can do today to really make a dent in your net worth. Don't think you are too old or that you may be in the negative right now, so "why bother". It's understandable, but there is no better time than now to change your situation, climb out of the hole, and make a difference.
Remember, whatever you focus on and give energy to, WILL GROW!!
Click below for the average net worth of a 40 year old