Net worth is your total financial worth. You take all the assets you have – cash accounts, investments, property, personal property – and figure out the value. Then calculate what you owe to others – mortgage, car loans, student loans. Subtract what you have from what you owe, and there you have your net worth.
It seems simple, but everyone is going to calculate their net worth a little differently. For example, in terms of personal property, I only count my car. I don’t count any of the items I own, even though some of them are likely valuable. One big reason is that the value is hard to calculate over time. I’m not going to have someone come in and appraise all of my stuff every few months. I also have a life insurance plan that I don’t count. Why? Well, it’s only actually got value if I’m dead, and I would prefer to remain alive.
I use Kelley Blue Book to estimate the value of my car. I use Zillow to calculate the market value of my home. These may not be the most accurate representations, but I’m less worried about the final number and more about how the numbers change. At the end of the day, I want to see that number go up. The only reason I include them at all is to counter the negative impact from my mortgage and car loan.
Is it possible to have a negative net worth? Not only is it possible, depending on where you are in your life, it’s probable. With mortgages, car loans, and student loans, a lot of people have major debt they’re working to pay off. This debt isn’t problematic. Maybe you make your payments on time every month, even paying extra, and still manage to put money into your savings account as well. It’s still possible that at the end of the day you’re in the red. Not a problem at all. Just keep working til you’re in the black.
So as I teased at the beginning of this post, my net worth has grown over 10% in the past four months! How in the world did I do it?
Commitment. Slow and steady commitment.
Yep, that’s it. No big secret.
I’m paying my mortgage on time every month. (I have a low rate so I don’t pay extra at this point, choosing instead to focus on funding home improvement projects, like my recent roof replacement.) I’m paying extra on my car loan every month.
I’m contributing to my retirement fund every paycheck. When the markets started to drop, I didn’t waver. I kept on course, knowing that my decisions were sound. I followed this same practice with my other investments. Even though the numbers had slipped, I wasn’t going to bail. These investments were made to be long term, so I wasn’t going to worry about the decrease.
I’m also really working to spend less money every month. I’m not always succeeding, but I’m doing my best. My cash accounts are looking better than they were, and I’m hoping a few months with no planned travel will only help those numbers.
(Of course, the increase in my home’s alleged value didn’t hurt, but based on some recent sales in the neighborhood, the number is probably sound. That said, I have no plans to move anytime soon.)
So the secret to increasing your net worth? Be smart with your money and don’t freak out when small changes happen to your bottom line. Work to pay off your debts, save for retirement, and invest when you can. Stay the course.
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