Inheritance and high income are not the only things that boost you to the upper tax brackets. Building wealth begins with changing the way you view and spend money. While raises and huge financial wins are great, it is the day-to-day habits that will increase your net worth.
Creating good spending habits marks the difference between financial success or distress. Instead of planning from paycheck to paycheck, you need to have a long-term view and savings plan. Reverse this thinking, and put your financial goals first.
5 Good Habits that Will Increase Your Net Worth
1. Pay Down Your Debt.
Since your net worth is the total sum of your assets minus your debts, it makes sense to pay off what you owe. Debt greatly detracts from this, so regularly paying down more principle on your debt is a good habit to increase your net worth.
If you have a large amount that you owe, you may consider debt consolidation or speak with a debt relief agency. These programs are especially helpful if you carry a lot of high-interest credit card debt. With one phone call, you can reduce your interest rates and monthly payments.
2. Evaluate Your Monthly Spending.
Not only is it important to build good habits, but also to identify bad ones as well. So, it is good to get into the habit of performing regular budget checks. These reviews allow you to make sure you are living within your means. Looking over your financial statements and monthly bills is an easy way to track your monthly spending habits. It is also a good way to determine if you have too many unnecessary expenses.
Creating a budget will help you save money and move towards your long-term financial goals. This does not mean that you have to give up everything you love, but you may discover monthly memberships or subscriptions you can do without. If you want to establish good spending habits that will increase your net worth, then you must also break the ones that negatively impact it as well.
3. Max Out Retirement Contributions.
Another crucial step in building your net worth is through your retirement accounts. While this may not seem a high priority in your twenties and thirties, it should be. The sooner you begin saving for retirement, the more money you will have for your golden years.
Many employers offer retirement plans with tax-advantaged accounts and contribution matching to help your funds grow even faster. If you do not take advantage of these benefits, then you are missing out on free money you could use to add to your net worth. Furthermore, these investment vehicles save you even more since it defers taxable income until your lowest earning years. Increasing your generative assets puts your money to work overtime and exponentially adds to your net worth.
4. Put Your Money in High-Interest Savings Accounts.
Choosing the correct savings account can help build your net worth more than you may realize. Even though current interest rates have not risen to previous levels, you can still earn more with a high-interest savings account than in a traditional one.
If you do not need immediate access to these funds, shop around to see which type of account will earn you the most interest. Leaving your money in low-interest checking accounts or stashed under your mattress actually depreciates the value of your earnings over time. Simple changes like this will maximize your earning potential. However, you also need to set the habit of contributing regularly to the account to reap the greatest benefits from it.
5. Look for Ways to Increase Your Earnings.
The bottom line is that if you want to increase your net worth, you need to look for ways to earn and save more. It starts by optimizing your savings strategy to best suit your long-term goals. However, you must also find ways to increase your earnings and assets. You could bring in more income by asking for a raise at your current job, looking for a side job, or earning passive income.
In addition to generating more income, any financial advisor will tell you to also invest when appropriate. There are numerous options of where to invest your money, but make sure you do not put all your eggs in one basket. Diversification protects your assets and earns more interest than savings accounts ever could. Let compounding interest help increase your net worth.
Consult with a Financial Advisor
If you ever find yourself with more questions than answers, it may be time to seek professional guidance. Setting up a consultation with a financial advisor can give you an objective assessment of your finances. Asking for help and getting expert advice are also good habits that will increase your net worth.
Many financial planners will offer a no-cost initial consultation free of charge. If you decide to use their services, they can help you evaluate new investment opportunities, begin retirement planning, and ensure you are getting the most out of your portfolio. Even if you are on the right path, expert advice can keep you moving towards your long-term financial goals.
Don’t Wait to Start Creating Good Habits
No matter what plan of action you choose, the most important thing is not to procrastinate in acting on them. It is easy to tell yourself that you will start working on your financial goals later. However, “later” can quickly become “never.” There will always be financial demands that seem more important, but there is no time like the present to start establishing good habits to increase your net worth. It does not require huge sums of cash to start planning for your future. Start small and build on that, using the small gains as momentum towards your savings goals. As you see financial progress and meet milestones, it will reinforce these good habits and keep you on the right track.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.