Learning how to increase your net worth is no simple task. On paper it may seem easy; just increase your assets at a greater rate than your liabilities. But as you soon learn, doing so is easier said than done.
Getting a clear understanding of your starting net worth is a great place to begin. However, relying on simple calculations of your current financial situation to predict what your net worth will be at your retirement may not be the best use of your time.
After all, many net worth calculators really only tell you two things; what your current net worth is or what it will be based on your current situation. They depend on simple mathematics to tell you about that is incredibly complicated. If you want to get a true sense on what your future net worth will be, you need to map out your core financial goals and build them into your future net worth.
The simple definition of a person’s net worth is the value of their assets minus their liabilities. In other words, to calculate your net worth, add all your assets together. This may be the income in your checking and savings, any investments in stocks and bonds you may have, including 401k’s, the equity in your house and car, and other notable property like jewelry or art.
Then, add all your liabilities or debt together. This may include credit card debt, your mortgage, student or car loans, or any other debts like medical or business. Now, to calculate your current net worth, simply subtract all your liabilities from your assets.
It’s an easy enough way to get a clear understanding on your current net worth. What becomes a little more tricky is learning how to increase your net worth while trying to achieve new financial goals that you have set for yourself.
Increasing your net worth is not a one-sized-fits-all strategy. It truly depends on what your financial priorities are. If the only thing you wanted to do in your life is increase the size of your net worth so when you retire, your assets were as significant as possible, you could certainly do that. But that means that you would never take on a loan, like a mortgage, auto or student loan. You would live simply, with a focus increasing income and assets rather than buying a house or taking vacations.
For most of us, our financial goals also include taking on debt. Unless you are the fortunate few that can already afford everything in cash, things like buying a car or house, going to college, renovating your house or even starting a business require taking some kind of debt. Now, the key to increasing your net worth as efficiently as possible while also realizing your financial goals comes down to this:
As I mentioned, trying to calculate your future net worth only based on your current financial situation is a little futile. Using a net worth calculator that only looks at your current situation and then predicts them against average rate increases is also only slightly better.
You need to consider what you want to accomplish over the course of your life to really get a sense on what your future net worth will be. Even better would be once you have established your target, financial goals, understanding the steps you need to take in order to achieve them.
Your future net worth is not a straight line. It can be daunting trying to achieve your financial goals while building net worth. It can even feel overwhelming. As soon as you buy a house, your debt shoots through the roof. And how soon will you have positive equity in your house as you pay down your debt? Also, if you start investing now, how much will you have at retirement at a decent rate of return?
At Wealthplicity, we have created a tool that will not only allow you to plot your financial goals but show you the most efficient ways to achieve them while you are maximizing your target net worth. We call it The Wealthplicity Financial Independence Calculator.
Not only does our tool give you an accurate picture of your future net worth based on your current situation, and your financial goals, it will show you the exact steps you need to take in order to create the greatest amount of net worth for yourself at the end of the your timeline.
Some of its features include:
Once you use the financial independence calculator, it will show you how much we can increase your net worth by vs. your current path.
Perhaps the most exciting feature of the tool is that it will tell you the exact steps to take in order to achieve it.
We are incredibly proud of this amazing system. The data and algorithms behind it are incredibly sophisticated. But we feel that people need a clear understanding of where they are and how to get to where they want to go.