Your net worth is one of the most important numbers to track over time. It’s the difference between what you currently own and what you currently owe, giving you an overall look at your financial picture at any point in time. It’s the sum of your assets (house, investments, cash, etc) minus your liabilities (mortgage, student loans, car loans, credit card debt, etc).
Knowing your net worth helps you see how your debt can affect your future wealth, and shows you what areas you need to focus on. Here are five things you can do to increase your net worth, starting today.
Pay down your debt
Debt encompasses everything on the liability side of the net worth equation, so paying it off is one of the most impactful things you can do to increase your net worth.
Paying off high-interest debt should be your top priority. You’ll want to focus on paying down high interest revolving loans (like credit cards, followed by personal lines or credit) first. You shouldn’t focus on investing until your high-interest debt is paid off, because this kind of debt will continue to snowball and get less and less manageable over time. You’ll also pay more in interest on these debts than you can hope to make in your investments. Here’s an article we wrote sharing five hacks to help you get out of debt.
Paying off debt is part of building a secure financial foundation, and once paid off, it frees up money to be put towards other net worth boosting things.
Invest your money
Get that money earning more money! Investing your money is how you’re going to see your nest egg grow. You’ll see a higher rate of return over time by investing your money in the stock market rather than having it parked in a savings account, where the interest rate barely keeps up with inflation.
You’ll also reach your retirement goals faster by investing in low-fee ETFs versus high-fee mutual funds. Have a look at this fee calculator to see how much more money you can earn by investing your money in low cost ETFs.
And if you’re wondering if you should invest in your RRSP or your TFSA, here’s a great guide for you.
Increase your savings rate
The more of your paycheque you’re able to squirrel away, the better off your bottom line will be. Start by creating a budget for yourself (here’s a handy budget calculator tool to get you started) to see where you could cut back and free up some extra cash to throw towards your savings goals.
You’ll see the biggest impact by minimizing your largest expenses like housing, transportation, debt repayment, and insurance. Shop around for the best rate and negotiate where you can with bigger or fixed expenses, and you’ll be surprised by how much those savings add up over the course of a year.
It’s also important to not take on more debt than you can afford, and to resist the urge to inflate your lifestyle every time you get a raise or increase your income. Just because you could squeeze the payment for the fancier car into your budget doesn’t mean you should. By saving that money instead, you’ll be growing your nest egg and giving yourself more money (and therefore options) down the line. Which, yes, can include fancy cars!
Increase your income
Look, there’s only so much you can do with the money you have. Increasing your income and earning potential is one of the most powerful things you can do to boost your net worth over time. The more money you make the more you can put towards debt, savings, and investments.
The easiest place to start is in the job you already have. Negotiating your salary (especially when you switch jobs) is important. The more experience you have and skilled you are, the more valuable you become as an employee. Continuing to focus on your skill and career development will reap financial rewards down the line.
You can also use your skills and passions to take up a side hustle. You might be able to freelance using skills you already have through your day job, or you might be interested in turning a hobby into a small side business.
Make sure you’re properly insured
Insurance is an essential part of protecting your net worth. Having the proper amount of critical illness, disability, and life insurance means that you and your income are protected. Life happens! If you get sick and can’t work for a while, disability insurance can cover your expenses so that you don’t have to dip into your savings and decrease your net worth.
Insurance is just another piece of the puzzle in protecting, and therefore building, your net worth. To see if you’re fully and properly insured, we always recommend that you start by building a financial plan.
That’s it! Check in with your net worth once a year to see if you’re on track with your goals. It’s normal to see fluctuations (there are lots of things outside our control, like the stock market) but seeing a number that’s trending upwards over time assures you that you’re headed in the right direction.
Grow your wealth. Manage your borrowing. Protect your assets. Planswell gives you a free plan that ties investments, insurance, and mortgages together so you can maintain your lifestyle throughout work and retirement.