Get-rich-quick schemes are a bad idea, but that does not mean you should take it slow when it comes to building wealth. There are many ways to build wealth. Your income is only one of them.
Eliminating debt will erase the red marks in the ledger of your net worth, and investing will help you build passive income. These are only a couple suggestions on how to build net worth, but there are as many suggestions as there are financial gurus.
What we would like to do is separate the wheat from the chaff when it comes to financial advice. We have assembled five tips to get you started on your journey to increased wealth, which you can see below.
Read on to find out how to build net worth in ways you may not have considered.
5 Essential Lessons on How to Build Net Worth
To build net worth that is lasting, you have to attack the problem from multiple angles. Our tips reflect this truth. Yes, we start with the obvious, but even if you are familiar with some of these tactics, we think you find a revelation or two somewhere among these suggestions.
See for yourself.
1. Eliminate Your Debt
Investing can be volatile, but eliminating your debt is a guaranteed way to increase your net worth. There is a direct correlation between paying down your debts and building your net worth.
There are several ways to go about eradicating debt. You can take out a debt consolidation loan but beware of predatory lenders if you go this route.
You can also go the route of guru Dave Ramsey’s debt-snowball method, in which you pay off your debts smallest to largest and continue to roll payments toward the larger accounts as you pay off the smaller ones.
Another method involves focusing on the highest interest debts first, to avoid going further into debt while you are trying to pay it off. Or you may simply try to drastically cut expenses by going the PB&J route for lunch until you are on steadier footing.
2. Create an Emergency Fund
Speaking of Dave Ramsey, he has another tip we recommend highly, no matter what your financial goals. His suggestion is to sprint to create a $1,000 fund for emergencies only. You should do this before even starting to pay down your debt.
Other than giving you a cushion against catastrophe, the emergency fund works to increase your net worth by building interest in your account for as long as you are able to avoid touching it.
“Diversify your assets” is classic financial advice. “Mad Money” host Jim Cramer recommends a diversified portfolio as one of the best starting points for investment, and he knows what he is talking about. If your goal is a Jim Cramer net worth level, you will be staring at a goal of $100 million.
Diversification is not just about your investments on the market, though. You can also spread your money across checking and savings account as well as investing in your own real estate. All of these things give your money multiple avenues for growth.
4. Maximize Your Retirement Contributions
Retirement funds present easy opportunities for wealth growth for a few reasons.
First, many employers match contributions to retirement funds. If you do not take advantage of these matching funds, you are leaving money on the table.
Second, contributing to your retirement gives you tax advantages, like deferring your taxable income to your lowest earning years.
Finally, a retirement fund increases your available assets.
All of these things make maximizing the money you put into your retirement fund a no-brainer.
5. Only Use One Car
Each new car you purchase effectively decreases your net worth. Not only are you spending money, but the money you spend depreciates rapidly thanks to maintenance, repairs when accidents happen, and the other true costs of car ownership.
You can minimize the damage car ownership does to your net worth by sticking with a single automobile and keeping it in excellent shape until it is truly time to purchase a new one.
The Strongest, Largest Safety Net
We hope you have learned something about how to build net worth by studying these suggestions. Other than exorbitant spending, there are no wrong ways to go about it, just ways that are more or less effective.
If you want more help with building wealth, check out our other money tips.