What is your net worth?
To put it simply, if you were to sell everything you owned and pay off all your debts, the amount that you would be left with is your net worth. Purchasing assets and paying off debts are both ways you can increase your net worth.
Purchasing Assets
Not everything you purchase will help you build your net worth. For example, purchasing a new car doesn’t increase your net worth as it quickly depreciates in value. You may have paid $20,000 for it but within a year or two it could be worth four to five thousand dollars less.
If you want to build your net worth, you will need to purchase assets that will ultimately increase in value over time such as works of art, rare coins, handmade Persian rugs, etc. Investing in real estate is another way to build up your net worth, even if you do need to take on more debt in order to do so.
Paying Off Debts
Another way to build your net worth is to pay off your debts including car loans, student loans, credit cards, and your mortgage. It’s always best to pay off high interest debt first, as well as debt where the interest is not tax deductible.