5 Ways To Build Wealth
This guest post was provided by Ashley at Wealth Meta. They are makers of financial apps and calculators. Their goal is to make it easy to organize your finances and secure your financial future.
Your net worth is one of the best metrics for tracking your financial health. It helps you track your progress toward your financial goals and enables you to understand your current financial status. The simplest way to compute your net worth is to subtract liabilities from assets, but it gets more interesting if you consider your total vs investable net worth.
As you save money (or pay off your debts), your net worth will increase. Monitoring your net worth will help you make adjustments and recalibrate the direction you are heading financially.
There are numerous strategies for growing your net worth. Here are a few to help you get your finances on track.
1. Utilize Your Retirement Plan Options
Retirement plans are great resources to help you build your net worth. Retirement plans have tax advantages that can help you boost your savings and prepare for the future. For example, many employers offer company-sponsored plans such as 401(k)s. Some of these plans provide match programs where the employer matches the employee’s contribution up to a certain amount. Essentially, you are earning free money for saving for your own retirement.
If your employer doesn’t offer a retirement plan you still have many options for saving for your retirement. You may consider opening a Roth IRA. This retirement account allows account holders to contribute with after-tax dollars. Then, in retirement, they can take tax-free distributions.
You can open an account with a financial professional or independently. Most financial institutions will offer Roth IRA accounts as well as other retirement options.
2. Automating Saving Contributions
Automating your savings and investing contributions may be the best decision of your life. It’s easy for life to get in the way and other expenses to come up that take away from our contributions. Making your saving and investing contributions a priority will help you build your net worth and set you up for a more secure financial future.
It’s a good rule of thumb to save at least 20% of your income. If you don’t have an emergency fund of at least 3 to 6 months saved for your expenses, you will want to divide your contributions between saving and investing. If you do have an emergency fund, you could sort your contributions by savings and investing goals.
For example, you may want to max out your Roth IRA every year. The contribution limit for 2019 is $6,000, which means you could automatically contribute $500 each month to your Roth IRA. With compound interest and a diversified portfolio, you will slowly watch your money begin to grow.
3. Paying Down Debt
Debt may be a contributor to a low net worth. If you have credit card debt, student loans, a mortgage, or other forms of debt, you could be lowering your net worth. If you’re paying high interest rates on your debt, it may be crippling your financial situation.
If you have credit card or other forms of high-interest debt, you may want to make debt repayment one of your top priorities. It may be helpful to find a debt repayment strategy that can help you accelerate your repayment. Here are a few strategies you can try:
- Snowball method: This method encourages consumers to focus on the repayment of their smallest revolving balance first, while continuing to make a minimal payment to other debt balances. Once you have paid it off, you can move on to the next balance. This method boosts your financial confidence and helps you see progress in a short amount of time.
- Avalanche method: This debt repayment strategy has consumer focus on their debt with the highest interest rate, while making minimum payments on their other balances. Paying a revolving debt balance with a high interest rate will help the consumer save money over time.
- Consolidate credit: Some consumers who have a lot of debt, transfer their balances to another lender with a lower interest rate. This can help you save money and focus on one account.
There are many strategies that can help you pay off debt. Take some time to sit down and make a plan for your debt. Paying off your debt will help your net worth grow.
4. Minimize Expenses
Do you know how much you spend on a monthly basis? Many Americans have no idea how they spend their money or where it goes every month. If you have ever looked at your bank account at the end of the week, month, or year, and wondered where your money went, it may be time to take a closer look at your expenses.
Minimizing your expenses can help you increase your income and put your money toward other financial priorities. You may want to start by reviewing your credit card and bank statements and writing down all of your expenses. You may discover that you’ve been paying for several subscription services that you weren’t aware of.
Also, track your spending habits for at least a few months. Identify potential budget leaks and poor spending habits that may be lowering your net worth. Once you have a grasp on all your expenses and poor spending habits, cancel any subscriptions you don’t use and try to negotiate lower services with your other providers. Take, for example, your cable bill. Try negotiating a lower price to maintain your service.
Not only does reviewing your expenses help you build your net worth, but it helps you avoid wasting money on expenses you don’t need.
5. Increase Your Income
It may seem obvious but increasing your income can help you increase your net worth. There are plenty of ways to increase your income. You may want to start by asking for a raise. Many employees are often too intimidated to ask for a raise. However, if you properly prepare in advance, you may surprise yourself with the outcome.
You could also consider starting a side hustle or the small business you have always dreamed of. The additional income you receive from your side hustle could help you contribute more to your retirement accounts, savings, or help you pay down debt.
The Bottom Line
Monitoring and reviewing your net worth will help it grow. At Wealth Meta, we understand the complexities of your financial well-being. That’s why we created the Net Worth Dashboard to help you simplify your calculations and evaluate your current financial situation. Using our Net Worth Dashboard may bring you one step closer to a secure financial future.
Visit Wealth Meta for more great personal finance articles.