We can define the net worth of a person or company as the set of assets and rights, but we must also take into account the debts and obligations that it has. Most of the time, what you want to do is increase your net worth, but how to do it?
In many situations, it is necessary to know the health or financial situation of a business, company, person, and even a country. This is to take the appropriate measures to improve it if necessary.
It doesn’t matter if you have a positive or negative net worth today, remember that this is a situation you can change.
After you read this article, you will know:
- How to increase your net worth;
- How to calculate your net wo
Net worth is the difference between your assets and liabilities. In other words, it is the total value of an organization after discounting its debts.
It is made up of the so-called own funds, which are made up of the capital contribution of the partners, the organization’s reserves, subsidies, and value adjustments, in case we are talking about a business.
In this way, the net worth must be present in the balance sheet in a clear way. In many cases, this value represents the general situation and the real value of the organization.
But when it’s about personal net worth, it could be the sum of your property and assets.
In a nutshell, net worth is calculated by subtracting all liabilities from assets of any entity, so the formula would read as follows: Assets – Liabilities = Net Worth. What are assets and liabilities? Here’s what you need to know:
An asset is any property that has a monetary value, while liabilities are obligations that deplete resources, such as loans, accounts payable, and mortgages. Subtracting liabilities from assets can result in positive or negative net worth.
Positive net worth results when assets exceed liabilities and negative when liabilities exceed assets. Positive and growing net worth is a sign of good financial health; while negative net worth is cause for concern as it could indicate a decrease in assets relative to liabilities or poor financial health.
For a publicly-traded company, a positive or rising book value will often be accompanied by an increase in the value of its stock price.
For individuals, high or substantial net worth gives them the title of the high net worth individual (HNWI). For example, Elon Musk and Jeff Bezos, as well as the millionaires who appear on the Forbes lists.
Various sites and portals on the Internet have tools to calculate net worth. We share with you the Bankrate one, which will also help you estimate how your net worth could grow or decrease over the next few years.
Sure, it can. The best way in which your net worth can help you obtain a loan is by being clear about how your financial situation is currently, and also helps you plan for the future.
If you plan to increase your net worth, you can opt for more expensive loans today. And in case you only need a simple loan, you can ask for 1-hour payday loans instead.
1. Cut expenses
The trick is to try to eliminate “bad” expenses: those that do nothing to increase your net worth. Eating out is one, buying clothes you don’t really need is another, unnecessary electronic gadgetry.
Cut these expenses in your life and suddenly the margin between your income and your expenses increases.
That margin is your net worth and you just increased it.
2. Primary residence
When talking about heritage, people normally think of their home almost as if they were synonymous. This is because, for most people, their home is their most valuable asset and also the one that is most perceived, due to its characteristics.
Under this structure of beliefs, a person’s house takes on fundamental importance when calculating her assets. The more capital a person invests in her home, the more her net worth will increase.
You should keep in mind that to determine your net worth you must subtract your obligations, so if you buy the house through a mortgage, you must discount the balance of the debt.
For example, if your house is valued at $3 million, but you owe $2 million on the mortgage, the house will only add $1 million to your net worth. In case your house is valued, you must take into account that surplus value for the calculation of your net worth.
For most people, the most accessible way to buy a house is through a mortgage loan. For this reason, you must choose a good mortgage, one that is convenient and doesn’t compromise your current finances, and at the same time that you allow you to pay early in case your finances improve in the future.
3. Reinvest from your investments
Once you have started investing, you may receive income from those investments in the form of dividends.
Instead of putting that money in your pocket, reinvest that money until you have a real reason to take it out.
4. Invest all windfalls
If you suddenly receive unexpected gains such as gifts or inheritance, don’t think about buying a plasma TV or installing a swimming pool.
Invest the money as quickly as possible. When your net worth is growing fast under its own power, you can start buying yourself those extra things.
5. Buy the car you will drive for a long time
Cars are a lousy investment and do a lot of damage if your goal is to increase your wealth.
You can reduce the negative financial effects of owning a car by buying the vehicle (or vehicles) your family needs, to drive it until it needs to be replaced, meaning you’ll own that car for at least ten years.
6. Talk to a professional
You may find it expensive or embarrassing to see an accountant or financial advisor, but it’s actually more expensive not to. Talking to a professional can give you the latest information on investing, how to use tax breaks, or help you budget.
Never be ashamed to ask for help and use all available resources.
Your net worth is a way of measuring your own financial success. Many have calculated their net worth and concluded that they need to increase it, but doing so can be very difficult.
Remember that it’s a time-consuming task that requires guidance, willpower, and a lot of patience.