7 Best Ways to Increase Your Net Worth
Increasing your net worth can have many benefits; it’s more than just bragging rights. For example, increasing your net worth can help you retire years earlier. It also leads to financial security, allowing you to worry less about money and more about the things that are important in life.
And while increasing your net worth may seem difficult, it doesn’t have to be. Granted, this will likely take years rather than weeks, but getting the right systems in place isn’t too difficult. Following any or all of these steps will allow you to increase your net worth and ultimately achieve your financial goals.
1. Boost your pension contributions
Increasing pension contributions is a great way to increase your net worth; however, people often don’t take full advantage of this strategy. For example, the 401(k) contribution limit for 2022 is $20,500, or $27,000 for people age 50 and older. If you have reduced your expenses as mentioned in the next step, you already have a way to increase your retirement contributions.
Contributing more to a retirement account can have a number of benefits. These accounts are often tax-deferred and many have an employer match. At the very least, you should bump up to your employer’s match limit, if you aren’t already. It’s an easy way to double your money. But thanks to the favorable tax treatment of retirement accounts, it’s generally a good idea to maximize your contribution to them before investing in other ways, such as with a taxable brokerage account.
2. Reduce your expenses
Reducing your expenses isn’t always fun, but it can be a very effective way to increase your net worth. One way to reduce your expenses is to use budgeting software or an app. Focusing on the “big three” of housing, transportation, and food can be a very effective way to save money. Reducing your housing costs is not always an option, especially if you have a family that is part of the equation.
However, lowering your transportation and food costs may be more realistic. For example, buying food in bulk and eating out less often can save you hundreds of dollars a month.
3. Pay off high-interest debt
High interest debt can severely limit your ability to increase your net worth. In fact, that’s exactly the problem for millions of Americans, who collectively have over $1 trillion in personal loans and credit card debt. Paying off these balances isn’t easy, but it’s essential if you want to increase your net worth.
If you have a lot of debt with interest rates above 10% per year, you don’t necessarily have to pay it off all at once. However, with credit cards, for example, paying only the minimum will ensure you stay in debt for years and pay thousands of dollars in interest.
First, focus on paying out everything you can above the minimum payout. This will reduce the interest you owe, which can cause a domino effect. You can also use a method like snowballing or debt avalanche to pay off your debt.
4. Save for emergencies
Having an emergency fund can help increase your net worth, albeit somewhat indirectly. For example, you might accumulate $5,000 in an emergency fund in a few years, but it’s not that $5,000 increase in your net worth that makes the difference.
The biggest benefit is being able to avoid that previously mentioned high interest rate debt. You never know when you’ll need to replace your refrigerator or make an unexpected visit to the emergency room. Without emergency funds, you may be forced to put those expenses on credit cards or incur other forms of high-interest debt.
This can lead to a vicious cycle of never-ending interest payments, which takes a huge toll on your net worth. Having an emergency fund helps you avoid this cycle, which will help increase your net worth.
5. Renegotiate/consolidate loans
Renegotiating or consolidating your loans can save you a lot of money in the long run. You may have been stuck with a higher interest rate when you first took out the loan, perhaps because you had bad credit or no credit. But if you’ve consistently made your payments on time and/or your credit score has improved, you may be able to refinance your loans at a lower rate.
Keep in mind that this isn’t always the best way to go. For example, one way to refinance federal student loans is with a private lender. However, this could lead to giving up some consumer protections, so refinancing may not be your best option in this case. Whether refinancing is your best option depends on your unique set of circumstances.
6. Keep your cars as long as possible
If you’re like most Americans, you probably live in an area where driving is a daily necessity. Therefore, owning a car is a must. But cars are a depreciating asset; you’ve probably heard that cars lose 10% of their value the moment you leave the dealership lot. That might be an exaggeration, but it’s true that they tend to lose more than 10% of their value in their first month, according to Carfax data.
In other words, if you buy new cars every few years, you’re constantly at the mercy of rapid depreciation. Keeping cars around longer helps you fight this cycle. Of course, all cars have a limited lifespan. At some point, maintaining them becomes more expensive than the money you save by avoiding excessive depreciation.
It can be difficult to know exactly when this point is, but if you’re doing expensive repairs like replacing the transmission, it might be time to consider a new vehicle.
7. Increase your salary
Raising your salary is easier said than done, especially if the job market where you live isn’t the strongest. However, if you want to increase your net worth, there isn’t much optimization you can do with your finances. If you’ve already done everything on this list, for example, increasing your income might be the best way to increase your net worth.
But you don’t necessarily have to take a shove or even change jobs to increase your salary. The first thing you can do is ask for a promotion in your current position, if possible. There are many ways to build a case for yourself; you can cite specific victories you have had at your job over the past year. You can also research salary ranges for your job in the area where you live. Finally, you can learn a new skill or earn industry certifications to further increase your value.
At the end of the line
Increasing your net worth may seem difficult, but it doesn’t have to be. If you follow the steps mentioned here, you may find that saving money becomes easier than expected. And when you calculate your net worth, that number could be way higher than you ever thought possible.