To leverage these smart ways of becoming a high-net-worth individual; start establishing good financial habits now.
- Update your budget.
- Boost your savings.
- Pay off debt.
- Increase retirement contributions.
- Invest in yourself.
- Lower your tax bill.
- Improve your career.
- Audit your insurance.
Update Your Budget
If you already have a budget – and hopefully you do – analyze and update it. After all, no budget can stay the same for long. You get a pet, add a streaming service or buy a car, and suddenly your budget changes.
You need to start by evaluating your monthly budget based on “important lifestyle expenses” and “nonessential expenses,” the latter of which might include a fitness club membership or dining out purchases.
Then, make an informed decision on the amount of discretionary income you have for financial goals. Once you have a number in mind that could go toward retirement or a savings account, start putting that money aside every month. If your budget is already in good shape, consider going a step further and creating a financial plan.
Boost Your Savings
If you don’t have one, you need a savings account. Your savings account, which could also be your emergency fund, needs to grow because if you’re borrowing money from yourself, you’ll take on less debt, which increases your net worth. Without a savings account to put money aside and help organize your finances, it’s hard to imagine becoming wealthy.
A savings account is at the heart of any strong financial portfolio. It allows you to manage your cash flow and pay for any unexpected expenses, such as a major car repair, without having to take out a personal loan. If you run into an investment opportunity, a robust savings account may allow you to invest. As long as you’re paying your bills, there’s no downside to fattening up a savings account and increasing your net worth.
Pay Off Debt
Paying off debt is a crucial early step to building wealth. High-net-worth individuals tend not to pay a fortune in interest.
Your net worth is the sum of liabilities minus assets. So as your debt decreases and your income and assets increase, your net worth goes up.
“First rule of increasing your net worth is debt elimination and should accompany every financial plan.
Increase Retirement Contributions
Next, increase funding to your retirement plan. Many experts suggest putting 10% to 15% of your annual income toward retirement. If you’re nowhere near that, aim for saving 1% or 2% more. Small additional contributions, if you’re making them every paycheck, will add up over the years.
In case you’re wondering if you should pay off all your debt and then set up a retirement plan, many financial advisors suggest doing both at one time – assuming it’s going to take years to pay off everything you owe.
“Take a balanced approach to invest the money found in your budget and reduce your debt, you’ll increase your net worth faster and the burden will be much easier and lesser; if you try a balanced approach as opposed to only saving or only paying off debt.
Invest in Yourself
While it’s always smart to invest in your future by putting money toward retirement or your kids’ future, investing in yourself now could increase your net worth.
For example, if you go to graduate school, in theory, you could get a better job. Of course, it depends on what type of degree you get.
If you hire a career or financial coach, you might get insight that leads you to a promotion. Investing in yourself won’t always help you become rich, but if you think roadblocks are keeping you from living your best life, fixing those problems may free you up to increase your income and accumulate wealth.
Lower Your Tax Bill
Everyone should pay their fair share, of course, but taking advantage of tax breaks will help your net worth grow.
Tax credits, such as the child and dependent care tax credit and the lifetime learning credit, directly offset your taxes owed. Meanwhile, a tax deduction reduces your taxable income. If you can lower your tax rate, you could potentially save thousands of dollars. Consider your tax bracket.
Again, no one is suggesting you don’t pay your fair share of taxes, but if you can increase your net worth by lowering your tax bill in ways the government allows you to, such as taking advantage of tax deductions or tax credits, why not?
Improve Your Career
Advance your career by asking for a raise or promotion when you are due for it, working toward a promotion, applying for a new job, or starting your own business.
Always be positive, and connect with every opportunity that shows up; sure, things may not work out the way you want. Plenty of businesses don’t succeed. But if yours does, and you own a successful business, you could find your net worth going up considerably.
Audit Your Insurance
Insurance can be extremely costly, as self-employed people with health insurance can tell you – or parents who insure teenage drivers.
Maybe you have excellent insurance; but if you are often cringing every time you pay your monthly health insurance, life insurance, or car insurance premiums, or you wonder if you’re getting a good deal on your homeowners or renters insurance, do yourself a favor and compare shop and reviews to ensure you are getting the best service at the best price.
If you can lower any of your insurance premiums; without cutting coverage significantly, you could put the savings into your retirement or other investments to increase your net worth.