A few years ago we here at Casa Frugal began taking charge of our money when we started calculating our net worth on a quarterly basis. Knowing our numbers in this area has seriously helped our financial game! Based on our experience, I am a BIG believer that even if you are drowning in a sea of debt you need to calculate your net worth on a regular basis to give you some idea of where you are at financially.
Even if you KNOW that your net worth is negative, seeing that negative number can be an enormous motivator to increase your net worth! Also, for us it was a HUGE step to cross the line from being in the red (with a negative net worth) to being in the black (with a positive net worth). We felt really good about our financial progress, and that was extra motivation to keep going on the same path we were on!
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For those of you who may not be very familiar with a net worth calculation, here it is:
Total Value of assets- Total Value of liabilities (debts) = Net Worth
What are assets? Basically an asset is anything that has value that you own and could access to live off, receive income from, sell, or trade now or in the future. Examples of assets are your home, rental properties, retirement accounts, savings/money market accounts, etc. Assets have the ability to put money in your pocket.
Liabilities, on the other hand, take money out of your pocket. Liabilities are usually debts, put simply. Examples of liabilities include mortgages, student loans, credit card debt, car loans, personal loans, etc.
Do you have some idea of what your net worth is? If not, go ahead and get out a pen and paper and tally the numbers. Yes, now! It’s ok, we’ll wait right here for you.
Did you do it? Now that you have some idea of what your net worth is, I’m guessing you’d like to see it looking better (in my experience that’s pretty much a universal finding the first time you calculate this!)
How to Increase Your Net Worth in 5 Basic Steps
1. Pay down debts.
I know this is kind of like “duh!,” but the good news is that debt paydown can be made easier through automation. Does anyone out there get paid more than once a month? If so, I think a cool way to pay down debt faster is to pay extra on debts every time you get paid. If you get paid every two weeks, this could mean that you make 26 payments a year rather than 12 if you pay monthly. Even if you don’t get paid every two weeks, you can still make a payment every two weeks, or maybe twice a month. Even if you can eke out something like 5% extra on debt repayment per month, it will help your debt get paid down faster. And when your debt goes down, your net worth goes up.
2. Increase the amount that you are saving or investing per month.
This can either be done through increasing contributions to retirement accounts or increasing the percentage that you send to your brokerage or savings or other investment account with every paycheck (or starting to save, for that matter!) As you’ve probably figured out by now, I am a big fan of doing this automatically through your bank. The big benefit of making this automatic is that it takes you out of the equation. You can be kidnapped by South American drug lords or sick in bed with smallpox and your savings/investment plan will still happen because it happens automatically, without your needing to do a thing.
3. Decrease the interest rates that you are paying on your debt.
This is more possible with some types of debts than others. If you have credit card debt, that’s an EXCELLENT place to start because that is probably your highest interest rate debt AND because if you have a solid payment history and you ask nicely (and don’t take no for an answer), this is one of the places where you are most likely to be able to negotiate at least a few points off your interest rate. It’s harder to do this with some other types of debt like student loans, but often student loans will have incentive deals when you first get them like “pay on time for the first year and get a 1% reduction in your interest rate.” If you are able to, definitely do it! Similarly, if you are paying a high interest rate on your mortgage and you are planning on keeping your home for a while it may be worth looking into the possibility of refinancing.
The benefit of decreasing the interest rates on your debt is this: decreasing the amount of interest you have to pay means that more of your payment dollars will go toward paying off what you owe, rather than going toward interest. You may even be able to drop the minimum required payments by getting lower rates- which means paying the same amount of money will erase the debt faster!! And as long as you aren’t digging yourself into more debt, this will increase your net worth.
4. If you are in a debt hole, stop digging.
If you are serious about increasing your net worth, I recommend that you stop taking on new debt. Just do as your grandparents and great grandparents did and if you want something, save up for it.
5. Find ways to increase your income.
Start a side hustle (some great examples are dog walking, blogging, or freelance writing), sell your stuff on eBay or Craigslist, pick up extra hours at work, etc. But this only works to increase your net worth if you put the extra dollars toward your debt or investments/savings! If you blow all your side hustle income on shoes, well… I’ll understand, but your net worth won’t.*
These days the internet has made it easier than ever to keep tabs on your net worth. If you don’t want the hassle of tracking down all your numbers and creating your own spreadsheet, the best FREE online resource that I know of to help you monitor your net worth is Personal Capital (review here). Even though we’ve long kept our own net worth spreadsheet, I also have an account with Personal Capital. It’s a terrific resource to help see where your money is going and establish a better budget, as well as better plan your retirement savings strategy. And it’s FREE- doesn’t get much better than that!
Do you calculate your net worth regularly or at all? If so, have you found it to be helpful or motivational?
*Yes I am a recovering shoe-aholic.
P.S. If you liked this post, you might enjoy using our free Net Worth Calculation Template. Sign up now to receive each new post delivered to your inbox, and we will email you the template! Sign up here.
DC @ Young Adult Money says
I don’t track my net worth regularly (or at all, I should say), but I definitely have been trying to pay down debt and increase savings. I think putting your income towards things that will hold their value or, ideally, increase in value is the most important way to grow your net worth.
Dee S says
That’s another good one! You are right, putting your money into things that appreciate rather than depreciate is another great way to grow wealth.
Brian @ Luke1428 says
I calculate our net worth twice per year, basically every six months. Any more than that seems a little bit obsessive. Paying off the debt was the most rewarding aspect for me. Seeing that figure in the liabilities column go down always kept me motivated.
Dee S says
We calculate it quarterly. And I agree, it is SO motivational to watch the numbers change, but especially when it is the debt load going down. Now if only it would hit zero one of these days… unfortunately we are still quite a ways from that.
Kurt @ Money Counselor says
We do track our net worth, though we don’t agree on what should be included. My wife excludes the value of our house and of farm land I recently inherited. In any case, I think net worth is the best overall measure of our financial well being and readiness for retirement one day. Interesting to note that our net worth grew at a faster rate after we managed to become debt-free. As you note, the less interest you pay, the more cash you have to invest in appreciating assets. So you get a double benefit of paying off debt.
Dee S says
Oh, we can’t wait! We are working so hard to pay off the debt right now. Can’t wait until we also hit the debt freedom stage!!
Shannon @ The Heavy Purse says
I definitely track our net worth as I think it’s important to know. And like you said, it can be very motivating (and occasionally depressing) to see. I try to keep in mind that it’s not necessarily a concrete number as some of things included are a bit fluid, like your home. It may be valued at a specific price but if you sold it – you could more or less.
Dee S says
I agree that when we first started tracking it was a little depressing. But that depressing feeling was a massive motivator for us- we didn’t want to be depressed about it for any longer than necessary!
No Nonsense Landlord says
Great advice. Pay off debt so you don’t have to pay interest is a big one. Get a side gig, and save 100% of that.
Dee S says
Exactly! I think it’s easy to forget that paying off debt is a way to increase your net worth- it’s much easier to focus on increasing assets sometimes I think.
Stefanie @ The Broke and Beautiful Life says
I’m working on number 4. My income is what’s really holding me back at this point.
Dee S says
Good luck! I know you’ve been working hard on the side hustles!!
We don’t track our net worth but I know it’s going up! I always say that I’m going to figure out what it is and update it, but it ends up on my very long list of things I need to do.
Dee S says
We started an Excel spreadsheet when we first started tracking it, so now it’s easy- we just add a new column and put in the new numbers every quarter.
Grayson @ Debt Roundup says
I track my net worth on a daily basis with Mint and Personal Capital. I like Personal Capital better, but Mint has better budgeting. These are all great ways to increase your net worth!
Dee S says
Nice! Wow, I’m not sure if I’d like knowing the daily numbers- I think it would make me too paranoid on the days when the stock market is taking a hit. We like calculating it quarterly because it’s usually enough time so that that day to day fluctuations do not have as big an impact. It would be great to have the numbers automatically calculated though- you can’t beat that!
I find this very practical and insightful. The one about find more ways to increase income seems a little self-evident, but at least it gets to the point.
Dee S says
Thanks! I know some of these are kind of common sense ideas, but I don’t want to skip over the basics for those who may be new to the idea of increasing net worth.
Tonya@Budget and the Beach says
I do calculate mine pretty regularly. I find that crunching number fairly often keeps me motivated to keep cutting back with spending and also earning more!
Dee S says
Exactly! It helps stave off the debt fatigue when you can see yourself making progress on a regular basis.