As many of you know, several months ago, I challenged myself with several short-term financial goals. One of them, which I haven’t talked about too much is to increase my net worth by 50%. For those who don’t know, net worth is the difference between your assets and liabilities. In other words, take all of your savings, retirement funds, and major assets and subtract your liabilities (loans, debts, etc.). Since my wife and I don’t have any loans or liabilities, this is a simple calculation.
I know that many of my
stalkers readers would love to hear specific numbers, but for my own protection, I choose not to disclose too much information. Over the past few months, my wife and I have been doing pretty well on this front. We are nowhere near reaching our goal, but I trust that in another year’s time, we should reach our goal.
Below I will share the on-going things that we do to increase our net worth. There’s no secret formula here, but it should give you a clear picture of why it’s important and how to increase your own net worth.
Why Tracking Your Net Worth is Important
Many people may not know the true benefits of tracking your net worth. After all, it’s just a number right? This is partially correct. There are many other factors that come into play and your net worth is only a small part of this. For young adults, while time is on your side, it also means that you haven’t had enough time to build up your net worth. In fact, college debt may cause you to have a negative net worth. Looking at a small number (or negative number) may seem depressing to many. To me, it’s motivating. It causes me to work harder.
Tracking your net worth is worth while when you recognize this aspect. It is a means to an end. It is not the end all, but it can serve as motivation to stick to your budget each month. It can motivate you to spend less money on useless items and instead put more money towards your retirement. While you have to be careful not to let it inflate your ego (if you feel like you have a large net worth), for the most part it will help keep you accountable. Last, but certainly not least, keeping track of your net worth is an indicator of how responsible you are with your finances. If you have a large salary, it may not mean much if you are spending it on depreciating assets (like financing a car). Instead, a healthy net worth that is steadily increasing, is one of the many indicators that you are prioritizing savings and investing.
How to Increase Your Net Worth
Increasing your net worth is all about discipline. It takes discipline to follow your monthly budget – to save money and invest it. But to make it more simplified, here are some basic steps on how my wife and I are working to increase our net worth. (I should also point out that we are still intentional to enjoy life to a certain degree – we could be more stringent, but we don’t want to hate life. For this reason, we are taking a nice vacation among many other hobbies. We don’t claim to be perfect).
- Minimize Unnecessary Expenses: Keeping your unnecessary expenses to a minimum is important because it gives you more money for savings and/or investments. If you are spending money on small items here and there, you are basically throwing your money away when it comes to tracking your net worth.
- Increase Income: People can be as frugal as they want, but they can only save as much as they are making. A great way to save more money or increase your net worth is to increase your income. I am working hard to earn more money with my online efforts, but I still have a long ways to go. We also use this as motivation to work hard, as future promotions will mean more money that can increase our networth.
- Invest Money: As you know, we are both maxing out our Roth IRA’s in addition to our employers’ retirement funds. (Find out why the Roth IRA is a great investment tool for Young Adults) A major benefit of this, when it comes to increasing our net worth, is that this is seeing a huge return with the increase in the stock market. Instead of earning approximately .8% from our online bank account with Ally (which is better than most savings accounts), we have seen a large return in our Roth funds. Investing money is one of the best ways to increase your net worth in a short period of time – especially because it is not limited by how much money you make from your job.
Like I said, there is not hidden formula in our effort to track and increase our net worth. Keeping track of it each month keeps us accountable and motivated to work harder the next month. It should not be the only tool to track your progress, but it certainly is one to consider.
How is your net worth? Is there anything else you are doing to increase your net worth?
Right now we’re trying to increase our income in order to increase our new worth. Can’t wait until that debt is gone!
You focused a lot on incrasing income as a way to increase your net worth. Reducing your debt is another way to increase you income almost dollar for dollar assuming that you are not using assets to reduce those liabilities of course.
I’ve never been in debt, but increasing net worth is definitely a challenge. Some good tips here.
I started tracking my net worth in college. It slowly moved south until I started working full time. I would get excited to watch it go up and would start trying to get it to increase more each month than the previous month.
When I was in the market for a new car, I was hesitant to buy it because it was going to drop my net worth from positive back to negative.
I’ve been tracking my net worth each month now for over 10 years. It helps motivates me and I advise others to do it as well.
To be perfectly honest I do not see the reason to refuse disclosing specifics.
Numbers is the name of the game. I have been openly publishing my networth last two years and will continue to do so.
The road was somewhat bumpy but I hope to reach my target towards end of the year. However, the more I think the more I realize that it will be a couple of decades journey – even to achieve modest financial independence.
Over last year I keep putting money in, but all investments are sliding down the row and very soon my monthly contributions of $3,000 will only keep my networth in the same place…