6 Resolutions to Boost Your Net Worth This Year
Although we often focus on income to evaluate our financial situations, that doesn't tell the whole story. The most accurate indicator of how you're doing money-wise is net worth, which is the value of all your assets minus your liabilities.
A net worth that consistently increases is a sign that you're going in the right direction. Commit to the following resolutions and you're sure to boost yours this year.
1. Keep track of it
Most people, if you ask them, won't be able to tell you their net worth. At best, they'll give you a rough estimate that may not even be accurate.
It's hard to make progress when you only calculate your net worth once in a blue moon, and that's why you need to keep track of it. Fortunately, there are apps that do this for you, such as Personal Capital.
2. Increase your income
There's plenty of financial advice on how you can save more money, but it often fails to mention the most effective way to save more -- increase your income. Here are a few potential options to consider:
- Negotiate a raise at work.
- Look for higher-paying job opportunities within or outside of your company.
- Build another source of income, such as freelance work.
Although it takes time and effort to make more money, this is what separates the high achievers from those who get stuck at the same wage for years.
3. Just say no to borrowing money
We're bombarded with opportunities to borrow money on a near-daily basis. While that financing plan for a new laptop or that car loan may have reasonable monthly payments, you're still adding debt and bringing down your net worth.
Try making a promise to yourself not to borrow any money this year, unless it's for an asset that could increase in value, such as a home. Otherwise, if you need to buy something, start saving for it so you aren't paying it off for years.
4. Adopt a frugal mindset
It's hard to become more frugal. I used to spend every penny, no matter how much I made. But if you want to improve financially, frugality is a must. Making more money isn't enough, as you can see by all the celebrities and lottery winners who blew through hundreds of millions of dollars.
The key to becoming more frugal is to pay closer attention to how you spend money and think about the long-term implications of your spending.
Instead of making an expensive impulse buy, give yourself a few days to consider if this is something you really need and how it could affect your savings goals for the month. Go over any subscriptions you're paying for every month and see if they're necessary, instead of just deciding that $10/$20/$50 per month is no big deal. All these seemingly minor spending decisions add up over time.
5. Get rid of high-interest debt
Building your net worth when you have high-interest debt is like trying to fight your way out of quicksand. After every bit of progress, the interest you're paying drags you back down.
If you have a loan with a high interest rate or any credit card debt, put as much money as you can toward paying it off completely. You may also want to look at balance transfer credit cards or low-interest personal loans to consolidate your debt.
6. Be smart about where you put your money
With the right approach, you'll be earning more money and spending less every month. That's a great start, but to grow your wealth as efficiently as possible, you need to know what to do with that extra money.
Here's a simple, effective way to allocate your income:
- If you have a 401(k) with your employer, make sure you're at least contributing enough to max out your employer match.
- Contribute money to a savings account with a high interest rate for your emergency fund. You can also use savings accounts to put money away for any big purchases or life events you have coming up.
- Only put enough to cover your bills in your checking account, since these accounts earn minimal interest.
If you have money left after that, you could add to your retirement contributions, either through your employer's plan or by opening an individual retirement account.
When you first check your net worth, you may find yourself disappointed or pleasantly surprised. If it's the former, don't let it get you too down. Even a negative net worth isn't always a sign of trouble. For example, people fresh out of college are often in this situation because they invested in themselves but haven't had the opportunity to recoup that investment yet.
What's important is where your net worth is going. As long as it's increasing, you can feel confident that you're taking steps to better your financial health.
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