To build your net worth, you need to come up with various strategies to help you accomplish this task. While the concept seems easy, not everyone is successful in accumulating their financial wealth fast. The temptation to spend it on something else is just too great for some people.
The truth is, good financial management is not just about knowing the skills involved to practice it. More than anything, your personality and habits will play an important role in managing your finances. Among the things that you need to work on are self-control and discipline. It does not matter if you have the most sophisticated application on your phone or if you are paying a huge fee to have a financial expert help you out. If you cannot commit and display the right financial habit and attitude, it will be next to impossible to build your net worth.
Once you have worked on your attitude about your finances, you will find that everything will fall into place. Your goals will be clearer and you will have more motivation to follow through with all your financial plans.
Sometimes, people find it hard to build their personal net worth because of the straightforward approach that they are taking. If you literally save money and put it aside, seeing it grow will tempt you to use it. You will get a false sense of complacency. You will think of many ways to use that money. Even with a promise to put it back, this is usually not a good idea. Things can happen and you might not be able to put that money back. You will soon find yourself delayed in building your net worth. Not only that, your inability to stay on track can be discouraging.
4 ways you can grow your personal net worth
Fortunately, there are specific ways that you can use to help you build your net worth without feeling tempted to make a couple of mistakes here and there. Here are 4 of your options to grow your wealth the unconventional way.
Pay off your debt
With consumer debt currently at $12.73 trillion, you know that a lot of people can certainly use this tip. However, there might be those who will doubt this strategy. After all, you are trying to increase your personal net worth. How will that happen when you are giving your extra money to your creditor or lender? As hard as it may be to believe, paying off your debt will make you grow your net worth faster. There are a couple of reasons for this.
For one, debt is a negative in your finances. Unless you get rid of this, you will be holding the growth of your net worth back. Not only that, the interest rate of your debt is most likely bigger than what is offered in a usual savings account. Just do the math and you will realize that your debt is taking more from your money compared to the interest being added to your savings. That being said, you know that paying off your debt is actually helping you add more into your net worth – no matter how indirect it might be. And when you have gotten yourself out of debt, please try to stay out of it this time.
Invest in yourself
This does not mean you should blindly buy things that will make you feel better. While you are allowed to reward yourself once and awhile, it is not a good idea to indulge too much because your money needs to be saved and not spent. But if you have to spend on yourself, make sure it is something that will increase your value. For instance, you might want to increase your knowledge or skill by enrolling in a course. This could be something that you can use when negotiating for a raise. Or it can help you get a higher position in a new company.
Have an emergency fund
If you have to put money into a savings account, it should only be enough to cover your emergency fund. This is the only amount that will make sense. Unfortunately, a lot of people do not have this in their accounts. In fact, 1 out of 3 pre-retirees does not have an emergency fund. Considering the fact that they are about to leave the workforce and rely on their retirement fund, this statistic does not really make you feel secure. When you have enough emergency fund, that is a positive entry in your net worth.
But the importance of this fund in your efforts to build your net worth goes beyond that. If you feel secure about your finances, you are more confident in taking risks. The higher the risk you take, the more returns you can enjoy. Since this fund will also relieve you of some stress, you can think clearly as you try to increase your wealth.
Finish paying off your house
This year, there was a 4.4% increase in mortgage loan originations. Your house will always be a huge part of your net worth. If there is one debt that you need to concentrate on, it is this particular property. Of course, this is easier said than done because of the huge amount that you have to borrow in order to buy your own house. But the thing about this debt is that every payment helps you grow your net worth significantly. And this is not because of the interest rate. Every payment that you make will not only be deducted from the negative in your finances. It will also be added to the equity of the house. That equity is the value of the house that you own. The bigger the equity, the bigger your net worth will become.
Paying off debt is the first step to building wealth
Of all the options to build your net worth, the hardest to commit to is paying off your debt. The fact that you are giving your money to your creditor and lender makes it harder to do. But we already explained why it is necessary. The only thing that you can do right now is to change your attitude so you can aggressively pay off your debt.
So how can you do that? Here are some tips that you can look into.
It’s all about your mindset
Most of us cringe at paying off debt because it feels like giving away your money. Obviously, there is no truth to that. You are paying for what you got in the past. Deal with it. But beyond that, it is very important for you to be cautious about how you will use your money. Any extra money that you will have should be considered carefully. You want to make sure that you use it wisely – whether that is to pay off debt, save your money or invest. Make it a habit to park your money for awhile before you think about spending it. This will eliminate the habit of spending immediately. You get to be smarter with how you use your money. Soon, you have put aside a lot of money to hopefully get out of debt faster.
Keep on acting on your goals
The key to developing the right financial habits that will keep you away from debt is to do it continuously. Commitment is a must. There is no room to cut yourself some slack. You have to always act on what is the best interest of your finances. Unless you are consistent, you might end up right back where you started – in debt. So keep on acting on your debt. Don’t stop. If you are lacking in finances, make sacrifices so you will never miss a payment. All it really takes is time so you will get used to it. Soon, you do not have to worry about living from paycheck to paycheck.
Do not be deterred by your slow progress
This is a good tip regardless of your financial goal. Whether it is paying off debt or saving more money, you should never be discouraged by the small improvements in your financial situation. Anything that is worth having sometimes will take time to complete. Sometimes, people get discouraged because they feel like they have been working hard to pay off their debt but there is hardly any improvement. Do not let this get to you. As long as you are paying more than the minimum, you should be alright. If you can negotiate with your creditor or lender for a lower interest rate, this can help you pay off the debt faster. Try not to focus on how long you have left to reach your financial goal. Instead, concentrate on how far you have come.
Once you have a handle on your debt, you can build your net worth easily. If you can avoid making any more financial mistakes, you will see your wealth grow steadily.