How to Calculate Your Net Worth
Before you can decide which assets will improve your net worth, you first have to calculate what your net worth is. This is a relatively simple calculation.
First, add up the total of all your assets. Then, you need to tally your total liabilities. Once you have these two figures, subtract what you owe from what you own to find your net worth.
Assets – Liabilities = Net Worth
If f you have more assets than liabilities, you will have a positive net worth. Conversely, if you have more liabilities than assets, you will have a negative net worth. The gross total will fluctuate throughout your lifetime depending on your income and spending habits. However, tracking your net worth can be a good indication of your financial health at any point in your lifetime.
10 Assets that Will Dramatically Improve Your Net Worth
If you are looking for ways to move the financial needle, here are 10 assets that will dramatically improve your net worth and help you start building wealth.
1. Real Estate
Real estate is an important part of building long-term wealth since it is an appreciating asset. However, to get the greatest return on these assets, you must maintain the property to help it retain its value. As the old adage goes, it takes money to make money.
Primary Residence
Your house is likely the most valuable asset you will ever own. However, it will also be your greatest liability until you pay off the mortgage. Over time, as you gain more equity and reduce the principle on the loan, you will improve your net worth as well.
Second Home
If you save up enough money to purchase a second home, it can positively impact your net worth. This is especially true if you can avoid a large mortgage and pay a larger down payment in cash.
Rental Properties
Investing in rental properties can be a great way to generate passive income. Not only is it an appreciating asset, but you can also use the rent payments can cover the mortgage. Once the property is paid off, it will generate pure profit.
2. Retirement Accounts
Your retirement accounts are also important assets that will dramatically improve your net worth. Many types of retirement accounts are tax-deferred. This lowers your taxable income and allows you to grow your savings more quickly. You can build these accounts even faster if you max out contributions to an employer-sponsored retirement plan as well. Whatever financial vehicle you choose, consistently building your retirement savings will help boost your net worth.
3. Investment Accounts
In addition to your retirement accounts, your brokerage accounts are another vital piece of your income strategy for retirement. Unfortunately, there are no guaranteed returns. However, there are ways to mitigate risks. Have your financial advisor help you manage your portfolio and select assets according to your risk tolerance to generate more income.
4. Life Insurance
Although most people view their life insurance as a post-mortem asset to be passed on to the family, it also allows you to accumulate cash that contributes to your net worth. Once you reach a certain threshold, you can access the cash if needed. And, permanent life insurance policies grow tax-deferred.
5. Income
Your salary is crucial in building your net worth. Not only does it pay for your lifestyle, but you can also use it to acquire more assets that will improve your net worth. If you need to bring in more income, taking on a second job or creating a source of passive income will increase your disposable income.
6. Education
Although it is hard to assess the value of your knowledge and experience, your education is one of your greatest assets. Investing in yourself builds your skill set which will help you to get higher-paying jobs and promotions. As you move up the food chain, this usually comes with a salary bump as well, increasing both your value to the company and your net worth.
7. Health
Good health is another important factor in your efforts to improve your financial situation. Maintaining a healthy lifestyle and seeking preventative care saves money on long-term medical expenses. It also allows you to work more hours and increase productivity so you can earn more.
8. Vehicle
A monthly car payment can become a huge liability. But once you own it, your vehicle is a valuable asset. Investing in something reliable will also save you a ton of money in the long run. You can find something more sensible to avoid high insurance premiums and hefty car payments as well.
9. Collectibles
Investing in collectibles such as fine art, rare wines, coins, toys, and antiques is a great way to turn your hobbies into an asset. Enthusiasts who become experts can distinguish which collectibles are valuable assets. You don’t typically get rich with yard sale finds, but it can be a fun way to pass on generational wealth.
10. Household Items
People often forget to include their large household purchases as assets. However, quality appliances, furniture, and electronic are all assets that will last you for years to come. You can save yourself in repair costs if you invest in quality instead of looking at the most economic option. And, it will increase your net worth by allowing you to keep more in your savings.
Strategies for Improving Your Net Worth
There are an endless number of strategies and assets that will help to improve your overall net worth. This list is by no means all-inclusive. However, most financial advisors and investors can agree that these 10 are among the most valuable assets you can acquire.
Did we miss something important? Which assets do you think are most important for improving your net worth?
Read More
- What Is Your TRUE Net Worth?
- How Often Should You Check Your Net Worth?
- How to Use Recurring Investment Strategies to Build Wealth
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