If you are tracking your net worth, whether it is for a general idea of how rich you are or to manage your wealth, there is one thing you really should know. The importance of positive net worth and how it can help you in the long run.
Everyone wants to be a millionaire, but only a few know the importance of positive net worth. As investors and entrepreneurs, we often focus too much on what can go wrong rather than what can go right. Our passion for success and belief in our own abilities helps us overcome obstacles, but makes it difficult to appreciate what we have.
Positive net worth is achieved when the value of a company’s or individual’s assets exceeds its liabilities.
In this article, we will discuss how to achieve a positive net worth and how to maintain it.
1.Analyze your Current Financial Situation
Your first step is to figure out where you stand financially. Calculate your net worth by adding up the value of all of your assets and then subtracting your debts.
Once you have all the data of your financial status, look for areas that can be improved.
Keep track of what you spend. Because it sounds so simple doesn’t mean it’s easy. It takes time and patience to get a handle on where your money is going each month.
For example, if you have credit card debt, consider ways to pay down that debt or refinance it with a lower interest rate. If you have student loans, look into refinancing or consolidation options with lower interest rates.
2.Determine Wat you Owe
To see what you owe, you need to review your last few statements.
I would start with a solid list of creditors and the amounts owed. That includes financial institutions such as banks, credit unions, investment firms, and insurance companies. It also includes other creditors, such as retail stores, credit card issuers, and utility and telephone companies.
Make sure that you include any and all debt (e.g., student loans). You should also include any debt that has been discharged through bankruptcy or settled for less than the balance due.
Once you have collected this information, determine the total amount that you owe.
3. Calculate your Monthly Expesnes
The monthly payment is the amount of money you are paying each month toward a debt. This can be a credit card bill, auto loan, student loan or any other debt. It is easy to figure out how much you should pay each month to pay off your debt in the shortest amount of time possible.
Here is the formula for figuring out your monthly payments on a credit card or loan:
Monthly Payment = Total Debt Amount / Number of Months to Pay it Off
Let’s do an example. Say you have $7,500 in total credit card debt and want to pay it off in 24 months (2 years). You would divide $7,500 by 24 to come up with a monthly payment amount of $312.50.
Add all the amount you owe to determine the value of monthly payment.
4.Eliminate High-Interest Credit Card Debt
If you’re trying to achieve positive net worth, the first thing you need to do is get rid of high-interest credit card debt. When you carry credit card debt month to month, a big chunk of your payment goes toward interest and fees. You can’t save money or build wealth if all your earnings are going toward interest payments.
Work with a financial planner to develop a plan for paying down your debt. Look at your budget and see where you can cut expenses in order to make your debt payments more manageable. If possible, increase the amount of money you’re putting toward paying down debt each month. The faster your debt is paid off, the sooner you’ll be working on achieving positive net worth.
5. Increase your Earnings
One of the easiest and most reliable ways to increase your income is through real estate investing. It doesn’t matter what type of property you own. If it’s making money, it’s increasing your net worth.
To get ahead financially, you need more than just a steady job and a fixed income. Look for ways to bring in extra money from side gigs or freelance projects. You could sell goods or services on eBay or Amazon (or even open your own storefront), do some freelance writing, buy and sell items for profit… with opportunities like these, there’s no limit to how much money you can make.
6. Create an Emergency Fund
Having money on hand can help you avoid using a credit card or borrowing from a friend or family member when you have an unexpected expense, such as a car repair bill. It can also help keep you from falling back into debt if you’re recovering from bankruptcy or other financial setbacks.
Some experts recommend having enough cash on hand to cover three to six months’ worth of living expenses. Net worth calculators and worksheets can help you figure out how much money you need to sock away for this purpose.
7. Choose Good Investments
Growth Potential
I’m not talking about stocks that have the potential to shoot up in value. I’m talking about investments that will grow in value over time. For example, you might buy a home for $200,000 today. If you’re able to sell it 10 years from now for $300,000, you’ll net $100,000 in profit — which is your positive net worth.
Investing in a Business
Investing in a business requires a lot more time and effort than buying a home or other property — but it could pay off big-time. If you invest with someone you trust, you can own part of a business and share in its profits. A successful business could build your positive net worth quickly — at least until you make the decision to sell your stake in the company.
Investing Wisely
Finally, if you don’t have enough free time to put toward a side gig or business investment, there’s always investing in stocks or other assets using an online brokerage account or robo-advisor service like Betterment or Wealthfront. Though those services won’t make you rich overnight, they can help grow your positive net worth steadily over the long term.
8. Track your Progress
The first step to being financially responsible is to keep track of your progress. Take a look at your finances, this includes your income and expenses. Create a spreadsheet or use a software tool to keep track of your finances. This will also help you to see if you are making progress or not.
Once you have established how much money you have coming in and going out, you can create a budget for yourself. A budget helps you to manage your finances by keeping track of your spending. The goal of the budget is to show where all your money is going so that you can make adjustments if necessary.
Also review your credit report once in few months to make sure there are no errors on it.
Conclusion
The quest towards achieving a positive net worth is a marathon, not a sprint. Over time, all it takes is some financial discipline and smart money moves to get you there.
There’s no point in working towards something if it doesn’t bring you closer to your goals. Achieving a positive net worth is a process, and the above principles should give you a good idea of what that process entails. It might seem like an overwhelming challenge, but don’t get discouraged. Once you start getting some momentum going, debt begins to disappear more quickly than you may think.