We often mistake net worth with investment. Yet, calculating your net worth is simple. All you have to do is calculate your liabilities and assets and find out what the difference is! Described as the real worth that you own, net worth is an important financial aspect to monitor. What is net worth exactly? How do you increase your net worth? Are there any successful personal financial plan? We got it covered :
Net Worth is the real measurement of your wealth
Net Worth is the difference between what you own (your assets) and what you owe (your liabilities). Assets could be homes, personal computer, furnishings, personal items such as jewelry, vehicles, and collectibles. Liabilities are debts, insurance, mortgages, and taxes.
To simply calculate your net worth, just list all your assets and your liabilities. The difference will highlight your true wealth.
Once you have a number, don’t be scared. If you are unhappy with the number, start off writing a personal finance strategy to increase your net worth. Here is an example.
Set up an objective within a given timeframe
To increase your net worth, you should write down precisely what you will do over the next year. Don’t put too much pressure on yourself by establishing a 5-year plan. Try 1 year first and reassess your objectives later.
A simple objective could be: « I want to double my net worth within a year. To do so, I will spend less and will add another stream of revenues to my income. I will invest wisely or start a new lucrative business with limited risk ».
Review your liabilities and invest wisely
Once you have a clear idea of where to go, now review each item one by one in the chosen categories. In the example above, if you decide to spend less, please list where you actually spend. Try to speak with the bank to lessen your debts if you have any. Find a new area of investment to look into. Be creative with the possibilities to lessen your liabilities and increase your assets.
Decrease your expenses and close any debts
We often say « work more, earn more». But if you actually spend a lot, working more won’t bring you more money. Hence, you must determine whether your spending behavior shall be readjusted or not. Keep a spending sheet updated and compare month by month. Are you overspending in eating out? Are you currently in debt after buying a computer? Make the right decision after looking at your budget.
Live somewhere cheap
If you live in greater NYC or LA, chances are that costs of living are high. Have you ever considered relocating to a cheaper city or country? Moving homes will cost you some money, but the actual savings you can do once established in a cheaper country will bring better advantages. Forbes has listed 8 countries that are cheap enough for you not to work while increasing your net worth. So pack your suitcase, close your debts, and start living off the real financial dream.