What is Your Net Worth and Why Should you Care About it?
For example, the value of your house, car, shares and super minus your mortgage, credit card or other debt.
Net worth typically includes your home, superannuation, shares, business investments and similar.
Whether you include your principle place of residence or not is up to you.
Liabilities include personal loans, business debt, car loans, mortgage, credit card and any other money you owe.
This includes money owed to family and friends or any money owing anywhere even if there isn’t a paper trail.
Knowing this amount helps you determine if you are on track financially, if you will be able to retire and if you need to make some changes to ensure you are financially stable as you age.
Knowing Your Net Worth Enables FIRE (Financial Independence Retire Early)
Knowing your net worth is a great step in working towards financial freedom.
If you don’t know what your income, assets and liabilities are, you can’t plan for retirement or be financially free.
Sit down now and write out all your assets and liabilities or use a calculator like this one.
This gives you a baseline to start from.
Don’t worry if your amount is in the negatives.
The important thing is to know it and work towards a positive net worth.
How do You Increase Your Net Worth?
Personally, I’ve been through a divorce, homelessness and major health issues so I know how your net worth might not be at the level you want.
The earlier you start working to increase your net worth, the better your financial future will be.
1. Set a Net Worth Goal
A clearly defined goal will enable you to measure how you are doing and if the changes you are making are having an impact.
For example, a 32 year old woman could set a goal of having a $270,000 net worth by her 35th birthday (rounding up the average for her current age group).
If she is already sitting above $270,000 I’d recommend setting a higher goal.
A 41 year old could aim for $573,300 net worth by their 45th birthday.
Then it is up to you how that is distributed such as through shares, superannuation, business or property.
Read the statistics here as to why I chose these amounts for these ages.
2. Decrease Debts
What debt do you have? Work at decreasing your debt as fast as possible and get rid of your loans/credit cards as you pay them off.
Your first step needs to be creating a $2,000 mini emergency fund to help you stop relying on debt to pay for emergencies.
As big as this might sound, having that money available will help you break the debt cycle.
Relying on debt for emergencies is a recipe for disaster. I understand that the cost of living is extremely high at the moment so many families have no option.
3. Increase Your Income and Investments
How you invest your money will depend on your personal risk tolerance and the financial advice you get.
I like business, shares and property.
Get some financial advice and decide on the best way to invest for your circumstances.
To test things out, you might want to try micro-investing.
There are a few platforms available but the fees tend to be high.
Personally, I prefer to save a lump sum of $500 or $1,000 in a high-interest savings account and invest it once it reaches that amount.
Along with investing, work on increasing your income.
Aspiring Millionaire shares 9 ways to increase your income.
Your job is not the only way to make money.
Check out 23 ways to make money on the side in 2023 for some ideas on side hustles.
Any extra you earn throw straight at savings/investments/superannuation as soon as possible.
The earlier you invest, the better it is and the higher impact it has long term.
Some ideas on making more money:
51 ways to make money from home
How to make an extra $20,000 a year
10 ways to make $1,000 this month
How to use your home to pay your mortgage
Think outside the box and look at ways you can make money and invest it to increase your net worth.
4. Keep Working On It
Your net worth needs to grow with you for you to have a comfortable retirement and life.
Have a clear goal for retirement but also smaller goals to keep you motivated along the way.
Once you reach a goal, increase it and keep working on it.
How does your net worth compare? What will you do to increase it?