The most important indicator to measure your wealth is your net worth. Quite simply, your net worth is how much you own, less what you owe. You will have your own personal goals as to why you want to build your wealth over time, but I most often hear the reason being financial independence.
Financial independence allows you to customize your life to increase overall happiness and purpose.
Regardless of where you are today, increasing your net worth comes with a few principles. There can be a million different paths to achieving your goals, but like most things in life, it all comes down to the basics.
Improve Your Education And Skills
With a college degree no longer being a big enough differentiator in the workplace, it will often be worth the time and money to continue investing in your education year after year. Finding a program to either help you specifically in your field, or in general best practices (like public speaking or data analysis), you can increase your earning ability for years to come.
By increasing your income through continuing education, you will be able to increase investments in other areas of your life to help build your net worth.
Buy Income Generating And Appreciating Assets
When your paycheck hits your checking account only one of two things will happen - the money will be spent or saved. To increase your net worth, you need to buy income generating and appreciating assets. These assets include (but are not limited to) stocks, bonds, business assets, personal real estate, rental real estate, farm land, products you create and sell, and more.
Instead of thinking of saving as a burden on your life, think of it as buying your financial independence. The more you buy the sooner it will come.
Reduce Big Ticket Items
I do not believe in the concept of cutting out your daily latte or avocado toast to increase your wealth. The areas to focus on are the big ticket items in life. As I’ve mentioned in a previous post, buying a smaller home can help improve your life exponentially. When it comes to buying a home, buying a new car, or paying for your kid’s college education, you have the opportunity to save hundreds of thousands of dollars over your lifetime.
Protect Your Assets
Along with reducing spending in big ticket areas, you also need to focus on protecting the big ticket areas of your wealth. Making sure you have adequate levels of life and disability insurance will protect you and your family’s wealth if you are no longer able to support them.
Monitor Your Budget
In order to know where you have room for improvement, you need to be aware of where your money is currently going. By monitoring your budget, you will be able to see if your spending is going to the areas that mean the most in your life. Living with intention is a great financial and emotional boost to your life.
Track Your Net Worth
How will you know if you are increasing your net worth if you don’t track it? By taking just a few minutes a few times per year, you will be able to see how your net worth is transforming over time. Much like your budget, this can be done on a basic spreadsheet, listing out your assets and liabilities and updating balances as time goes on. You will start to see trends and be able to spot red flags when you get into a regular habit of tracking.