It's perhaps one of the most important financial numbers you should know, but many people aren't even sure exactly what it is. If someone were to ask, would you know your net worth? Would you even know what the question meant? If you've never heard the term until today, fear not. Here's everything you need to know about that pesky little number that is one of the best indicators of your overall financial health.
What Is Net Worth?
In its simplest terms, the phrase net worth refers to the overall value of your goods and possessions minus what you owe. In broader terms, your net worth is the total value of all of your assets. Take your possessions — how much you have in savings, retirement accounts, your home value, checking accounts, etc. Then, subtract your overall debt — credit cards, student loans, debt, etc. Hopefully, when you subtract what you owe from your possessions you get a positive number. The higher the number, the better.
How Can I Build My Net Worth?
A high net worth is a good thing and there are a few different ways to focus on building your net worth.
1. Tackle Debt
The main thing you can do to increase your net worth is to pay off your debt. High-interest credit card debt is a great place to start. If you have multiple cards with balances, consider paying off the smallest balance first. This way you'll receive a little boost early in your debt payoff schedule to help bolster you through what you need to do to pay off the rest. (Check out more methods for paying down credit card debt.)
The longer you hold on to debt, the more you're likely to pay in interest rates. There are a lot of strategies to take that might make paying off debt easier. Consolidating your loans into one place might help make your loans more manageable if you have more than one. It might even be possible to refinance to a lower interest rate. Check out all your options before deciding which one is best for your situation.
2. Make More Money
This is easier said than done, but another way to work on your net worth is to simply bring in more cash. Whether that's asking for a raise at your current job or taking on a side gig to bring in a little extra pocket money, the more you can pad your income, the better your net worth will be.
3. Invest in Retirement
If you have an employer offering to match your 401K policy and you aren't taking them up on it, you're lowering your net worth. If you're taking part in a company match or contributing to a retirement plan but haven't re-evaluated it in a while, it's time to reconsider how much you're putting away, and it might be time to increase it. Remember, you don't need to have a retirement plan through work to invest in your future, there are other IRA options are available as well.
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