Increasing your net worth has more benefits than just giving you something to brag about. For example, if your net worth goes up, you might be able to retire years earlier. It also gives you financial security, so you can worry less about money and focus more on the important things in life.
And even though it might seem hard to increase your net worth, it doesn’t have to be. Even though it’s likely to take years rather than weeks, setting up the right systems isn’t too hard. If you do some or all of these things, you can raise your net worth and reach your financial goals.
1. Boost your retirement contributions
Putting more money into retirement is a great way to grow your net worth, but most people don’t use it to its full potential. For example, the most you can put into a 401(k) in 2023 is $22,500. Also, people who are 50 or older can put in an extra $7,500. If you’ve cut your spending, as we’ll talk about in the next step, you already have one way to put more money into your retirement account.
Putting more money into a retirement account can help in many ways. Most of the time, you don’t have to pay taxes on these accounts, and many of them come with employer contributions. You should at least put in as much as your employer will match, if you aren’t already doing so. This is a simple way to make twice as much money. But because retirement accounts are taxed in a good way, it’s usually a good idea to put as much money as you can into them before investing in other ways, like through a taxable brokerage account.
2. Trim your expenses
Cutting your expenses isn’t always fun, but it can be a great way to increase your net worth. Using budgeting software or an app is one way to cut down on costs. Focusing on the “big three” of housing, transportation, and food can be a very effective way to save money. It’s not always possible to cut down on your housing costs, especially if you have a family.
But you might be more likely to be able to cut your transportation and food costs. For example, you can save hundreds of dollars a month by buying food in bulk and going out to eat less.
3. Get rid of your high-interest debt
Having a lot of high-interest debt can make it very hard to increase your net worth. In fact, this is the problem for millions of Americans, who have taken out personal loans and credit card debt totaling more than $1 trillion. It’s not easy to pay down these balances, but you have to if you want your net worth to go up.
If you have a lot of debt and interest rates that are higher than 10% per year, you don’t have to pay it all off at once. But if you only pay the minimum on your credit card, for example, you will stay in debt for years and pay thousands of dollars in interest.
First, pay as much more than the minimum payment as you can. By doing this, the interest you owe will go down, which can lead to a chain reaction. You can also pay off your debt using a method like the debt snowball or the debt avalanche.
4. Save for emergencies
Your net worth can grow in a roundabout way if you have an emergency fund. For example, you might save up $5,000 in an emergency fund over a few years, but that $5,000 increase in your net worth is not what makes the difference.
The biggest benefit is that you won’t have to take on that high-interest debt. You never know when you’ll need to buy a new fridge or go to the emergency room when you didn’t plan to. If you don’t have an emergency fund, you might have to charge these costs to your credit card or take on other high-interest debt.
That can lead to a never-ending cycle of interest payments, which will hurt your net worth a lot. If you have an emergency fund, you can break out of this cycle, which will help you build your net worth.
5. Renegotiate/consolidate loans
Renegotiating your loans or combining them can save you a lot of money over time. When you first got the loan, you may have been stuck with a higher interest rate because you had bad credit or no credit. But if you have been making your payments on time and/or your credit score has gone up, you might be able to refinance your loans for a lower rate.
Remember that this isn’t always the best way to do things. For example, a private lender is one way to refinance federal student loans. But you might lose some consumer protections if you do that, so refinancing might not be your best option in that case. Whether or not refinancing is the best choice for you depends on your unique situation.
6. Try to keep your cars as long as you can.
If you’re like most people in the U.S., you probably live in a place where you have to drive every day. So, you have to have a car. But cars are a type of asset that loses value over time. You’ve probably heard that cars lose 10% of their value as soon as you drive them off the lot. Carfax data shows that they tend to lose more than 10% of their value in the first month. This may be a bit of an exaggeration, though.
In other words, if you buy a new car every few years, the value of your old cars goes down quickly. By keeping cars for longer, you can break out of this cycle. Of course, every car can only be used for so long. At some point, it costs more to keep them running than the money you save by keeping them from wearing out too quickly.
It can be hard to know when that time comes, but if you have to make expensive repairs like replacing the transmission, it might be time to think about getting a new car.
7. Make more money.
It’s not easy to get a higher salary, especially if the job market where you live isn’t the best. But there’s only so much you can do to optimize your finances if you want to increase your net worth. If you’ve already done everything else on this list, for example, the best way to grow your net worth might be to make more money.
But you don’t always have to get a second job or even change jobs to make more money. The first thing you can do is, if it’s possible, ask for a raise at your current job. There are many ways to make a case for yourself. For example, you can talk about specific successes you’ve had at work in the last year. You can also look up the range of salaries for your job in the area where you live. Lastly, you can increase your value by learning a new skill or getting industry certifications.
It might seem hard to get your net worth up, but it doesn’t have to be. If you do what’s written here, you may find that it’s easier than you thought to save money. And when you figure out how much your net worth is, it could be a lot more than you ever thought possible.