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.
Using Debt To Build Your Net Worth
You can also use debt to help build your net worth, as long as the debt is being used to purchase an asset that will appreciate in value. Although you cannot know for sure whether the asset will appreciate, if you focus on assets that generally do, you will be far more successful in building your net worth than if you purchase assets that always depreciate.
Habits That Will Help You Build Your Net Worth
Building your net worth takes time and a disciplined strategy. It’s important to develop good habits such as the ones below in order to build up your net worth:
1. Pay off high interest and non tax deductible debt.
2. Set up preauthorized payments into your investment accounts and pay yourself first.
3. Build up both an emergency fund and your RRSP.
4. Stick to your budget.
5. Be a smart consumer. Shop around and do your research for major purchases. Look for deals and rebates.
6. If you’re self-employed, make sure you are saving enough to pay your income tax at the end of the year.
7. Use your credit cards wisely. Make sure to pay off your entire balance owing every month to avoid paying interest.
8. Pay all of your bills on time. Set up preauthorized payments directly from your bank account.
1 Comment