Episode 112 

How to Grow Your Net Worth Like the Wealthy 

Knowing and keeping track of your net worth is a great tool to measure progress in your finances. Tune in to learn how to grow your net worth and build a better financial future.  

How to Calculate Your Net Worth  

Net worth is a popular term and everyone should be thinking about it. Why? Knowing your net worth is a good way of tracking your progress towards your goals. It essentially serves as a snapshot that can help capture where you are financially, which can help determine what financial steps to take in the future. I challenge you to calculate your net worth today. The formula is simple; take the dollar value of all your liabilities and subtract this from the dollar value of your total assets. Once you do this you’ll know where you stand. Don’t be discouraged by a negative number, you can use this as a challenge to increase your net worth. 

Increasing Your Net Worth  

How can you increase your net worth? You can approach this from different angles. You can start by decreasing your liabilities. For example, paying down high interest debt like credit cards is an easy way. Another method includes writing down your fixed expenses to try and spot any areas where you can cut back. For example, eliminating unused subscriptions. Once you free up some money, you can reroute these funds to pay down debt faster or add to your assets. 

Let’s analyze the asset side. Here your goal is to acquire and grow existing assets. For example, adding to investments in the stock market. What other strategies do the wealthy use?  They borrow money to acquire assets at a low cost and use that money to generate income.  

What about retirement savings? If you have an employer that has a matching contribution to your 401K, it’s time to take advantage. Most millionaires have more than half of their net worth in retirement accounts. It’s no surprise this is a popular investment vehicle since they allow us to earn free money from employers. To top it all off this investment vehicle can grow over time thanks to compounding interest.  

Not All Debt is Bad Debt  

That’s right. Not all debt is bad debt. Good debt is when you take borrowed money and invest into an asset that is likely to appreciate over time or give you a return on your investment. This can include buying a rental property and using the cash it generates to pay off the loan used to acquire the asset. Bad debt is when you take borrowed money and invest it into something that will depreciate over time. This can include the purchase of a vehicle, since after all, vehicles are known for depreciating dramatically very quickly.  

Protect What You Have  

You can’t grow your net worth if you lose the things that contribute to its value. It’s important to safeguard your information. Someone with your personal information has the ability to derail you from your financial goals. I recommend looking into password encryption apps, requesting an IRS identity protection pin to ensure no one tries to file taxes under your name, freezing your credit to avoid scammers opening new lines of credit, and having an emergency savings to cover any unforeseen liabilities. 

Key Takeaways 

There are plenty of ways to reach a net worth you’d like to have. The first step is to take that snapshot to understand what your net worth is today. From there apply some methods that’ll grow your assets and decrease your liabilities. I’m a big believer in using professionals to help you reach your goals. Everyone’s situation is different and with expert coaching, a CFP(r) professional can help you obtain and maintain a good net worth. 

Notes: 

In this episode, Luis talks about the following and more: 

  • How to calculate your net worth 
  • Strategies for growing your net worth 
  • Good debt vs. bad debt 
  • Ways to protect your net worth 

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