Hello. If you’re reading this, you must have searched on ‘How to Increase Your Net Worth by Reducing Your Liabilities’. Are you among the working bracket that lives from hand to mouth? Are you looking forth towards escaping that ferocious lifestyle and grow on your own? The awful life of struggling between paying debts and catering for your needs must be pathetic. It’s time to grow out of your shell and explore your full potential. That’s why we are going to show you some of the ways you can escape poverty by reducing your liabilities.
For starters, however, we need to know the meaning of net worth. This, in simple terms, is your assets minus liabilities. The value you have, be it in your bank accounts or property, less liabilities such as mortgage and overdrafts. The net worth is the most important number. It’s a summary of your financial well being, an indicator of your growth economically. Now enough of little chat and forward to the most essential part.
1. Review your Assets and Liabilities
You may not know the exact worth of your assets, but you can approximate. List all your assets down, without forgetting a single one out, and write down their respective worth. You can classify them into different groups:
I. Investments: these are inclusive of bonds, stocks, mutual funds and retirement plans. The taxes imposed on these assets will go to liabilities.
II. Collectibles: Jewelry, art, wines and fine antiques. These will fluctuate in the market prices, but you can always call in an appraiser to come in and assist you.
III. Home and rental property: These are normally paid in cash, so including them will be very important.
IV. Primary residence: This is how much your house is (equity) less the mortgage. The higher the equity, the higher your net worth.
The next step is evaluating your liabilities. Liabilities come in different forms: mortgage, loans, overdrafts, and credit card debt. If there are any that you can pay off, please do so. This will go a long way in increasing your net worth. Loans with high-interest rates should be a priority to clear. Remember, the longer you stay with them, the higher the interest, and thus, the more you’ll pay. For the credit card debts, you can opt to pay them using a 0% balance transfer.
Change the manner in which you pay your debts. You don’t have to wait for the end month to pay them at once. Eliminate them either weekly or bi-weekly. Clearing lump sum amounts at once will discourage you. That’s why you need a more friendly approach.
2. Trim your Expenses
It’s time to stop living like a millionaire and use the little you have sparingly. The less you spend, the more you accumulate on your net worth. Review your expenses and check whether you can trim out any unnecessary ones such as magazine subscriptions or selling one of your vehicles. Try to grab a few dollars from here and there to add up to something. The amount you recover from trimming expenses can be used towards a more useful course such as paying off your debts. By the end of the year, you’ll realize how much of a significant milestone this step will take you.
3. Find Alternative Sources of Income
Think outside the box and get a second job. Your monthly income might be fair, but to increase your net worth, you’ll need more than fair. There are lots of things that you can opt to do, with endless opportunities. You can decide to look for a second job, take on freelance jobs, sell items on eBay or make use of your talent. If you get serious with the alternative income options, you can add a few thousand dollars to your bank account. Just think of how much this can make a difference.
4. Invest your Extra Income
Instead of letting that extra cash lie around, why not invest it in something that will bring you good returns. We all have that spare money that we normally keep for future use. Make the most out of this. A great way of investing in this money is through stocks. This is one of the easiest methods of cashing in good money. All you need to do is wait for your money to gain interest. Good knowledge of the market shares is, however, inevitable. A good return will bring you roughly 7% annually. This is from the S&P 500.
5. Get Married
This last one might sound a little odd and funny, but trust me when I tell you that marriage is a great way of increasing your net worth. Marriage not only comes with conjugal advantages but also financial ones. For one, there are tax advantages added to it. Married couples don’t pay the same taxes as single individuals. It will be even better if you have a dual income household. Why? Simply because your net worth will increase because you’re combining assets.
Make use of the statement ‘what is yours is mine and what is mine is also yours’. This statement will literally get you out of poverty. With the extra money you get, you can opt to buy a house, rent it or make a home of it and live happily ever after!
Before ending this article, there’s one thing worth mentioning. In this 21st century, there’s a better way of settling your debts. IVA’s plan is another great way of settling your lump sum debts. This is where you agree with your creditors to make affordable monthly payments. With no time, your debts will be a thing of the past.
A great financial planner isn’t the one with the highest amount of income, but rather the one with the best financial strategy. Have a strategy that will address all of your financial needs and sectors. By doing this and following all our tips, you’ll be on the right path towards a higher net income.