What is your net worth?
Your net worth is the value you get when you total up all your assets and deduct all your debts and liabilities.
Your assets will include your bank savings accounts, investments in ISA’s, your house, your pension, your car, and any other items you possess that are worth something such as the Picasso you have hanging in your toilet.
Your liabilities will be all the debts you have such as your mortgage, car finance, personal loans, credit card debt, and any other borrowings you may have.
Calculating your net worth is something you should do regularly so you can measure how successful you have been in building your wealth and improving your financial wellbeing. Setting yourself goals is a great way to keep your net worth on track.
Table of Contents
- What is your net worth?
- Why increase your net worth?
- Increase the value of your assets
- Reduce your liabilities
- Boost your income
- Reduce your costs
Why increase your net worth?
Increasing your net worth means you are becoming richer and who doesn’t want to have more money? The wealthier you are then the more choices you will have as you can now afford to buy more should you so desire.
Having a high net worth means you can buy your dream house, afford to buy a decent car, travel to different places, retire early or do a lot more things compared to having a low net worth.
Who wouldn’t want to be a millionaire or a billionaire as having all that money allows you to do so much more than the average person in the UK.
So lets look at some ways we can boost our net worth and set ourselves on the path to financial independence.
Increase the value of your assets
Increasing the value of your assets can be done by reviewing them one at a time and seeing what small improvements will give a larger boost to their value.
Your largest asset is likely to be your house so it makes sense to start with that first. Keeping your house well maintained and in good order will prevent it from losing value. Whilst, giving your kitchen a makeover, updating your bathroom, or giving your garden a tidy-up can improve the value of your home.
Your car normally depreciates rather than appreciating in value so it is important to try and maintain the value of you vehicle by having it regularly serviced and having any minor dents or scratches repaired before they become more serious.
It is important to regularly review the interest rate you receive on your bank savings accounts to ensure you are maximising the return on your savings and they are not being eaten away by inflation. Compare your existing interest rates with alternative savings rates by using comparison sites such as Moneyfacts.
You should also regularly review your investments to replace any poorly performing stocks and shares. Rebalancing your portfolio on a quarterly basis also helps to prevent your investments to prevent you becoming overly exposed to unintentional risks.
It is important to keep your savings and investments in tax-free vehicles such as ISA’s to minimise the amount of tax you have to pay on any gains made. At the same time monitor the charges that your broker or platform charges as otherwise, these will eat away at your net worth.
Over the long run it has been shown that invested in shares provides a much better return than keeping your cash in a bank account so give careful consideration to converting some of that cash into shares.
Whilst it is great having assets you need to ensure that these are protected so if your house were to burn you would not lose all that value. It is therefore important to ensure your assets are adequately insured just in case something disastrous was to happen.
Reduce your liabilities
As well as reviewing your personal assets it is critical that you reduce your liabilities if you want to increase your net worth.
Your mortgage is likely to be your biggest liability so you should carefully monitor this to ensure you are not being charged an excessive amount of interest. Being on a fixed or a capped rate is generally better than being on a bank’s standard mortgage rate. Use a price comparison site to ensure you are on a good mortgage deal. Remember to look at charges as well as interest rates as these can vary significantly from one lender to another.
If you can increase your mortgage repayments so you are reducing the outstanding balance quicker this will save you money on interest and help to increase your net worth.
Always compare the rates charged by alternative lenders or credit card companies as they are always looking for new business and offering low rates to entice borrowers.
If you have a credit card debt then if you can identify an introductory offer of 0% balance transfer for 6 months then it makes sense to transfer your existing debt over to this credit card company. This will not reduce your liability but is will mean that it is not increasing as much as it otherwise would.
Make sure you are aware of all the charges involved in transferring any debts as these can be significant and outweigh any savings you make on interest.
Boost your income
Increasing your net worth is easier if your income is higher than your outgoings as this allows you to save more money or to pay off any existing debts faster. Boosting your income can be performed in several different ways.
One of these is to increase your income from your main job. This can be done by either working more hours to earn more money, asking your boss for a pay increase or looking for another job that pays a higher wage.
You could also look to take on a part-time job to help increase your income. This could be a conventional job or could be a part-time hustle such as selling items on eBay that you do to earn some extra cash. There are lots of side-hustles out there and there is bound to be one that would allow you to make a few hundred or even thousand a year.
Reduce your costs
Cutting your living costs will increase your disposable income allowing you to buy more personal assets or to reduce your liabilities. Either way cutting your costs increases your net worth.
There are lots of different ways you can save money such as canceling your gym membership, not buying a coffee every day on your way to work, or shopping around for the best deal when renewing your house and motor insurance each year.
If you write down all your monthly expenses and carefully review them you are bound to be able to identify a few areas where you could save some money without making any drastic changes to your lifestyle.