What is the best way to check your financial health?
Your credit score? Blah! No, that’s just the banks way of grading on how well you handle your debt addiction.
You can have a credit score of 850, paying your bill every month on time, collecting those HUGE cash back allowances… and be broke with zip, nada, in your checking and saving accounts. No matter how much you see it advertised every day by the likes of Credit Karma and the like. Remember, when something is advertised, its because there is money to be made on YOU, not to help you. So, no, not your credit score.
Something the financial industry is not shoving in your face everyday is your net worth.
Your net worth is the best way to evaluate your financial health.
So what is your net worth then? In layman terms… your net worth is the difference between your assets and liabilities.
An asset is anything of value that can be converted to cash. Think, a home with positive equity, rental properties, businesses, stocks, bonds, savings, checking accounts, etc.
A liability is typically something that you owe to somebody else. Think, credit card debt, student loans, auto loan, home mortgage, personal loans, etc.
Net Worth = Assets – Liability
So what is yours? You can figure it out easily by trying out our free net worth health check printable in our new Free Downloads section.
Where do you stand?
So are you worth something? Or are you sitting in the red?
- Under 35: Median net worth: $11,000 (average net worth: $76,000)
- 35-44: $59,800 ($288,700)
- 45-54: $124,200 ($727,500)
- 65-74: $224,100 ($1,066,000)
- 75+: $264,800 ($1,067,000)
I personally would not compare myself against the “average” numbers as they can be skewed heavily by your millionaire/billionaire buddies, think the Mark Zuckerbergs of the world.
Don’t worry, no matter where you are in your financial journey there are always ways and time to improve your standing.
Live Below Your Means
You hear this one all the time, but are you actually doing it? Are you living paycheck to paycheck? Are you keeping up with the Jones down the street, you know, the ones who are maxing out their 5, 6, or 7th credit card buying that new iPhone?
Do you know where your money is going? If you don’t, give our Free Monthly Budget printable a try to see where your hard earned dollars are going.
After writing everything down, give it a a real hard look. What are your biggest culprits? Are you spending too much on going out to eat every night? Is that cable bill outrageous? How much are you paying every month for that new car?
If you want to see where you can cut back on your current expenses head on over to our Ultimate Budget Guide to learn some tips and tricks.
Attack your debts!
If you want to turbo charge increasing your net worth PAY OFF THAT DEBT. Any debt you have is acting like a vampire on your finances, constantly sucking money out of your pockets in the form of interest payments. Every time you pay off a debt your basically paying your future self in saved interest payments, with a guaranteed return.
For example, we paid off over $160,000 in student loans in a 4 year span, about $60,000 this year alone. If we did the normal payment schedule we would be handing Sallie Mae almost $10,000 in interest a year! Now that money is going back into our investments and savings, turbo charging our net worth.
““Whatever interest rate you have — it might be a student loan with a 7 percent interest rate — if you pay off that loan, you’re making 7 percent. That’s your immediate return, which is a lot safer than trying to pick a stock or trying to pick real estate, or whatever it may be,”
Mark Cuban (Billionaire)
Automate Your Savings
One of the easiest ways to remove the temptation of spending your paycheck the second its pay day is by automating where you money goes. Take out the worry of trying to save X dollars every pay check. Have your paycheck automatically send money to your savings or investing accounts.
Give your paycheck a purpose! Take a look at our 35/45/20 rule to maximize your growth potential.
Maximize Retirement Accounts
If your primary income comes from a W-2 (your 9 to 5 job) a good chuck of your gross income is going to either Uncle Sam or your primary state of residence in the form of taxes.
You can put more of that money in your pocket by maximizing your retirement contributions, either through your 401k retirement plan or a traditional IRA.
You reduce your current tax liabilities by reducing taxable gross income by increasing your pre-tax contributions. By even increasing your contributions by even 1 to 2 % you could end up putting thousands of dollars back into your retirement “pocket”.
Give Yourself an Allowance
One of the greatest concepts that helped us turbo charge our net worth this year was giving ourselves money to spend on whatever we wanted.
Yes, we gave ourselves an allowance. A fixed amount of money that we could spend on anything!
That $4 Starbucks coffee? Yup, went for it. New video game? Fancy pair of pants. No sweat. As long as it fitted within the allowance.
By not depraving ourselves, we didn’t feel like we were punishing ourselves on our financial journey.
Remember its a marathon, not a sprint. Think of it kind of like how folks typically fail a dieting, because they deprave themselves of simple pleasures instead of doing what is right by developing a long term, sustainable, life style change to achieve their goal.
What you set as your allowance is up to your given scenario. Could be $20 a week or $500, you may have to play around it until you hit that sweet spot. I recommend cranking it down until it hurts and then adjust upward.
Invest in Appreciating Assets
Make your money work for you by creating multiple streams of income.
Rental properties, stocks, bonds, high yield savings accounts, starting your own business.
All of the above investment instruments have their own barriers of entry and each come with their own levels of risk.
The lowest barrier to entry and lowest risk is definitely a high yield online savings account. In a Federal Reserve interest rate cutting world, what we define as “high yield” is around 1.90%. Look into online high yield savings providers to get the best rates. I recommend Synchrony Bank, but there are plenty of alternatives, just be sure that they offer FDIC insurance!
The second lowest barrier to entry to grow your money would be in the world of stocks and bonds.
It’s actually even cheaper and easier than ever, as of October of 2019, many of the major trading houses have reduced their commission fees to $0. The risk increases though, stocks and bonds can go to zero, so due diligence is required here, but the growth potential is huge. If you are unfamiliar with the stock market start with Investopedia.com and SeekingAlpha.com to get investing savey!
Investment properties are another method of increasing your wealth. You’ve probably seen the infomercials or YouTube videos of 20 year old millionaires flipping or renting out houses, sounds almost too good to be true!
When you step up to looking at investment properties the up front cost and risks amplify. Do you have $200,000 laying around? No? Okay looks like your taking out a loan. Oh shoot, the kitchen needs to be gutted? $20,000. Plumbing problems? $10,000. New roof? $15,000. But wait! You can rent it out for $1200 a month! Wow a 30 year pay back period!
Obviously I am being a little harsh here and plenty of folks are successful with investment properties, but there are plenty of horror stories, so due diligence is required here as well. You may end up being a millionaire on paper but when you only have a net worth of $100,000 and have $900,000 in mortgage liabilities, do you really want that hanging over your head?
Avoid Expensive Liabilities
Do you really need that $50,000 Silverado? You a business owner? No? Office job? Then why are you driving a $50,000 truck? Oh I am sorry your driving a $45,000 BMW sedan, my mistake.
New cars are money pits that add very little value to building your net worth. Since most folks are financing the crap out of these new cars its a double whammy. Getting whacked on terrible depreciation, long 7-8 year loan terms leading to being upside down on a depreciating asset. These are anchors on your net worth growth.
When it comes to most consumer goods if you can’t by it in cash, you shouldn’t be buying it at all.
If an automobile is a necessity in your next of the woods, look into to a reliable low mileage used one. If you can pay for it in cash, even better!
Did you see the new Iphone 11 Pro? Wow what a looker! Three cameras you say? No Way! How much?
Well… that’s a sure fire way of going in the wrong direction in increasing your net worth.
Do you really need it? Like REALLY really? How about just holding on to that old iPhone 8 just a little while longer.
One of your best tools to increasing your net worth doesn’t have to be how many dollars and cents are coming in to your home every week. Its your mindset in the form of delayed gratification. Resisting the temptation of an “immediate reward” for your long term growth goals is key to your success.
Bring it all together!
By living to the above topics we were able to supercharge our net worth growth by over 50% this year alone!
Remember, it’s never too late to change your mindset! Take charge today and stick to it. In 3 – 6 – 12 months from now you’ll be amazed by your progress.
Let us know your ideas, tricks, success stories below!
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Categories: Money Rants