Want to increase your net worth? There’s a few different ways to get there. Below I outline the steps that, if followed, will help you increase your net worth by over $25,000 per year.
What does increasing your net worth by $25,000 mean? It means that every 4 years your wealth will grow by $100,000. Every decade you’re upping your wealth by a quarter of a million dollars. If you’re out of debt, that means you’re banking 100% of this cash. If you’re in your twenties, doing this means you will retire a millionaire. See? Isn’t this cool? Don’t you want to do this?
How to Increase Your Net Worth
Step 1. Focus on increasing your income to earn $50,000+ per year
The easiest way to increase your net worth, is to increase your income. I know this seems obvious, but you’d be surprised how many people think they can “get rich” on tragically small salaries. Saving 30%+ of your income is fantastic — but it won’t increase your net worth by $25,000 per year if you’re only bringing home $2,000 per month.
For this reason the best thing you can do is, instead of focusing your energy on slashing your budget, focus on bringing in more money. There are a few ways to do this. The easiest and most lucrative is to negotiate your salary.
Wouldn’t it be nice to make more money to do the job you’re already doing? That’s what negotiating your salary gets for you! The second best thing you can do is find a side hustle.
A side hustle is any kind of part-time work that lets you bring in extra money on top of your day job. This can be anything from babysitting to selling collectibles on eBay. Even something that brings in as little as $50 per week will add $2,600 per year to your income.
Related Post: The Logistics of how to ACTUALLY Increase Your Net Worth By $25,000 Per Year (includes a peek at my old paycheque!)
Step 2. Aggressively pay off your debt
If you’re carrying a balance on a credit card, their scary interest rates are eroding any wealth-building progress you’re making. Not only does eliminating debt increase your net worth, it makes it easy to further increase your net worth by other means because you’re no longer burning money up with interest.
For example, for every $1,000 you owe at 15% interest, you’re losing $150 per year to that expense. This means you actually have to pay $1,150 just to make your net worth budge $1,000! On the other hand, if you invest $1,000 at 3%, you’re gaining $30 per year. The net worth difference between a -$150 drag and a +$30 boost is $180.
This means that a debt-free person is already almost $200 ahead for every $1,000 in the net worth game than a person that has debt.
This is obviously super simplified math for the purpose of example only, and real numbers will be different due to things like compounding and monthly payments, but the logic still stands. No matter how you cut it, being in debt is expensive!
If you have large debt balances like student loans or car loans that will take a few years to pay off, don’t beat yourself up too much. More likely than not, it took you a few years to get into debt, so it’s going to take you a few to get out of it!
The important thing is that you make debt repayment an urgent financial goal, and strive to pay off all your debts ahead of schedule. The sooner you get to debt free, the less interest you pay, and the more money you’ll have to increase your net worth!
Step 3. Save 25%+ of your income
You can only increase your net worth at a rapid pace if you’re saving a high percentage of your income. Most financial advice will tell you to save 10% of your take-home pay, but the truth is, if you want to be wealthy you will need to save 25% or more. If this seems insane, I promise it looks a lot less intimidating broken down into different accounts and goals.
For example, a few of the things I’m working on right now include building a $10,000 emergency fund and saving $25,000 for retirement. I will contribute $500 per paycheque to my emergency fund and $400 per paycheque to my retirement accounts. Assuming I get paid twice per month, this translates to $1000/mo into my emergency fund and $800/mo into my retirement accounts, boosting my net worth by $1,800 per month or $21,600 per year. If I use my income tax refund to top up my accounts, I’ll hit the $25,000 annual savings goal no problem!
Step 4. Don’t buy cars and houses
If you think saving more than a quarter of your income is crazy, it’s probably because you’re carrying a ridiculously huge car payment or a mortgage.
A car is not an asset, a car is a money-hungry black hole, much like a child except quieter and can be left unattended for long periods of time without consequence. As for a mortgage, I don’t even want to touch this because I will want to go into super rant mode but I would STRONGLY discourage you from counting your home in monthly net worth calculations (annually or every 2-5 years makes more sense).
I don’t really care if your house is worth $450,000 now and 6 months ago it was valued at $400,000. That’s nothing but paper profits and unrealized gains, it’s not money in the bank. Lastly, making your monthly mortgage payment is doing very, very little for your net worth in the early years of homeownership since the bulk of it is going towards interest. You are running on a hamster wheel of a false sense of progress, chasing a dangling carrot that is probably laced with cyanide. If you don’t believe me, ask an American what it was like to have their house foreclosed upon in 2009.
Full disclosure: I was born without the gene that makes all bright-eyed and bushy-tailed millennials reach for the holy grail of “owning a home”. I know that eventually I will grudgingly take on the burden of a mortgage, but it will be in my thirties and because it’s the only way I will be allowed to own a dog since renting with pets is basically impossible in my city.
Step 5. Invest in income-generating assets.
This means use your money to buy things that make you more money. I try to keep a relatively balanced portfolio, and I’m partial to dividend stocks. More often than not, when I purchase a new investment, it will generate a monthly or quarterly payout (with the exception GICs and some mutual funds, which pay out annually).
I always reinvest this income into more income-generating assets. The goal is to maximize passive income to relieve some of the net worth boosting duties of your salary. In my mind, the more money you can get without working, the better.
Increasing your net worth take discipline and commitment
But it’s a worthy journey for long-term financial security!