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Colin OShea

October 03 , 2016

Investment Basics: Net Worth Know-How

Net Worth Know-How

Knowing exactly how much you are worth today is a critical first step in building a financially secure future. Net worth is simply the total value of personal assets minus the outstanding amount of debt and other obligations owed. You are heading in the right direction if you show a positive net worth. And, if you can increase that number from year to year, you’ll be moving toward greater financial security.


Add Up Assets


Your assets include what’s in your bank accounts, money market funds, certificates of deposit, retirement plans, mutual funds, and other securities. Add in the value of your home and other real estate, business interests, life insurance (cash value), and personal property, such as jewelry, autos, furniture, etc.


Subtract Your Liabilities


Your liabilities are what you owe on your mortgage, credit card balances, student loans, lines of credit, and other loans. If you owe taxes, include that amount as a liability. 


Increase Your Net Worth


Getting a clear view of your assets and debts can be a wake-up call and can energize you to take the necessary steps to increase your net worth. Here are four steps that can help.


Manage your debt. Boosting net worth is not solely about accumulating assets, it’s also about reducing or eliminating debt. A written debt reduction plan can help you focus on this goal. Start by paying off debt with the highest interest rates first and then move on to paying off your other debts. Doing so will give you extra cash for investments that can potentially increase your net worth.


Control spending. Look for places where you can cut back on your spending: eating out, expensive vacations, or a new car every few years. Use the extra money to invest.


Contribute more to your retirement plan. If you have a retirement plan, make an effort to increase your contribution rate. At the very least, contribute enough money to get the full benefit of any matching contributions your employer may offer.


Find additional income. The money you make from a second job, freelance work, or selling items you make can be used to pay down debt or can be invested to boost your net worth over time.


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