Suze Orman Says This Is the Foundation of Wealth

Your net worth is one of those things you may not think about very often. Rather, you may be more focused on whether you can afford this week's groceries.

But you may be interested to know that the median net worth of Americans in 2019 was $121,760. And you also may be interested in growing your net worth to that level or beyond. If you want to do that, then there's a simple step you'll need to take first, according to Suze Orman.

What's net worth, anyway?

Before we go any further, you may be wondering what exactly people mean by the term "net worth." In a nutshell, it's a measure of your assets minus your liabilities.

So, let's say you have $10,000 in a savings account and own a home worth $300,000. You might also have a credit card balance of $5,000 and a mortgage balance of $230,000.

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In this case, your total assets equal $310,000. Your total liabilities equal $235,000. All told, you're looking at a net worth of $75,000 when you subtract your debts from your assets.

The key to growing wealth

Growing wealth is a process. It's not something you should expect to do in a matter of months or even years. Rather, it might take decades for your net worth to reach a number you're happy with.

But if you ask Suze Orman, the key to growing wealth is to start with having an emergency fund. In fact, she calls an emergency savings account "the foundation of wealth."

Why so? It's simple. If you have money on hand for unplanned expenses, you won't have to reach for a credit card and carry a balance you rack up interest on every time surprise bills arise.

Over time, credit card interest can accrue against you, making your debt cost more and making it harder to pay off. And the more money you're spending to pay down debt, the less you have on hand to save and invest.

Let's say you don't have emergency savings and have to charge a $1,000 car repair on a credit card with an APR of 18%. If it takes you two years to pay off that balance, you'll wind up spending about $200 on interest.

Meanwhile, let's say you do have savings to cover that bill and don't spend $200 on interest, but rather, invest $200 over 30 years. The stock market's average over the past 50 years has been 10%, as measured by the S&P 500. So if you manage to score a 10% return on your $200, you'll end up growing it into about $3,500.

Putting your savings on autopilot can help

And that's exactly why you should focus on building an emergency fund if you don't have one already. If you're looking to get started with emergency savings, a good bet is to put the process on autopilot. Set up a recurring transfer so that money lands in your savings every month. It doesn't matter if you're able to transfer $20 a month, $50, or $100.

Obviously, the more you can transfer, the better. But the point is to start with some sort of safety net so you aren't forced to reach for a credit card the next time you're hit with an expense you weren't planning on.