6 Powerful Ways to Increase Net Worth
Practical, expert-informed strategies to build wealth by reducing debt, bucketing assets and taking calculated risks.
Summary
Ron Tallou reminds savers that savings accounts alone do not accumulate long-term wealth, in a Forbes roundup of six strategies to grow net worth, from strategic debt payoff to bucketing assets by time horizon.
Roughly 450,000 people monthly search the internet to find out Elon Musk's net worth. Unfortunately, researching rich people from afar reveals no practical advice about increasing your own net worth.
If you crave a richer lifestyle, you can create one without selling tech companies or becoming a pop star. You may not reach Musk's net worth, but you can build a comfortable, fulfilling life. Here are six powerful, expert-informed strategies.
Know the math
Your first step is knowing the math of wealth. Net worth is the value difference between your assets and your liabilities. You can pursue higher net worth in two ways: reduce your debts or increase your assets. Do both and you will see results faster.
Repay debt strategically
Any debt reduction mathematically increases your net worth, but some repayments can be counterproductive long term. An easy guideline is whether the debt carries a single- or double-digit interest rate. Single-digit rates can be manageable. Double-digit rates can be toxic. Pay off the double-digit accounts first, starting with the highest rate.
Bucket
Alex Michalka, vice president at Wealthfront, endorses a bucketing strategy to increase your assets while managing risk. Short-term assets cover immediate and unexpected bills. Medium-term assets fund goals one to five years out. Long-term assets pay for things like retirement, where you can take more investment risk because you won’t need the money for five years or more.
Take risks
Taking risks is part of the wealth process. As Ron Tallou, founder and owner of Tallou Financial Services, says, "Savings accounts don’t accumulate long-term wealth."
Deana Healy, vice president at Ameriprise Financial Services, recommends starting with new or higher 401(k) contributions. 401(k) investing can be lower risk than unrestricted investing because options are limited and vetted, you earn tax deductions, and you may earn employer matching contributions.
Borrow
Chris Kampitsis, financial advisor at Barnum Financial Group, recommends debt as a more advanced wealth-building strategy. Debt can let you buy more assets than you could otherwise afford. There is risk, however: if the asset you buy loses value, the debt works against you.
Budget in reverse
Filip Telibasa, owner and planner at Benzina Wealth, motivates clients with reverse budgeting. Begin by setting an inspiring financial goal, then create a plan that makes the goal possible. On days when you feel like splurging, remember the goal.
A richer lifestyle
Pay off high-rate debt, invest according to your timeline and take calculated investment and leverage risks. Stay on course by focusing on the endgame. Ten years from now, your future self will thank you.