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Having a great salary, lots of assets, and an expensive home may sound appealing. Your net worth however is what you would have left if you were to sell everything and pay off all your debts.

Article by Akwasi Duodu

How to increase your net worth – a short guide

Whilst gross domestic product, unemployment numbers, and inflation are key indicators of the state of a nation’s economy, your net worth is the key indicator of your overall personal financial health. So, do you know what your net worth is?

In today’s article, we focus on what you can do to understand your current net worth, how it is calculated and what you can do to increase it over time.

What is net worth?

The simple definition of your net worth is your assets minus your liabilities. the best way to do this is to add up all the assets and property you own and take away any debt that you have. Now you have your net worth. There is no better way to accurately measure your wealth and measuring it over time can give you an indication of whether things are getting better or worse.

Tracking your progress

If you had a good understanding of your net worth today, you could set objectives for how you wanted it to grow over time. However, focusing solely on earnings and assets and how they may have grown over time is a flawed but common method of measuring financial progress.

If your liabilities were to grow at the same pace as your assets, however, your net worth would be static. A major part of wealth and financial planning is goal setting. Setting goals will give you a benchmark to track your progress.

Calculating your net worth

The first thing to do when calculating your net worth would be to add up all your assets. This would include the value of any properties you may have, personal possessions, pensions, savings and investments, businesses, shares, vehicles and anything else of value. The next step would be to make a list of all your debts.

This would include mortgages, student loans, personal and car loans, taxes owed, credit cards and maintenance payments. Subtract your debts from your assets and you have your net worth.

Why it’s important to know your net worth

Your net worth shows where you are financially. Having a great salary, lots of assets, and an expensive home may sound appealing. Your net worth however is what you would have left if you were to sell everything and pay off all your debts. What would be left? Does that amount get larger every year? And how does it look when you throw inflation into the mix?

Ways to increase your net worth

One way to help your net worth grow is to make smart purchases into assets that are likely to grow in value and out-pace inflation. Although these all come with risk warnings, investing in stocks and shares, equities, commodities, and property are good ways of increasing our net worth whilst hedging against inflation.

Purchasing or investing in depreciating assets or assets that don’t keep pace with inflation, such as clothes and shoes, vehicles and poor-return deposit accounts are surefire ways of decreasing your net worth. Once you have a plan for how to increase your net worth, it would be also wise to look at ways to preserve your assets, property, and wealth.

Financial progress

A lot of us measure financial progress by the value of our home. But a home needs maintenance and maintenance means money. Factor inflation and mortgage interest into this and the value of your home may not be growing quite as quickly as imagined. Homes aren’t bulletproof either as the credit crunch and subsequent slide in property values indicated. This same principle applies to all the assets you may have.

Measure your progress

Measuring progress of your net worth goal lets you see whether you’ve made a dent, are at a standstill or have fallen behind. This information is useful in helping you understand where you are versus where you need to be. Working with a financial adviser may be the best option if you’re serious about making progress. Ask them to help you increase your net worth and share the responsibility with them.

Looking to increase your net worth?

Whilst you can take these tips and start on your journey to growing your wealth and improving your net worth, you are likely a busy individual with limited time on your hands.

At Sterling & Law, we offer a dedicated wealth management service for those keen to grow their wealth and preserve their assets.

For a complimentary consultation, call us today on 020 3740 5856 to start the process.

Article FAQs

Please find below some questions and answers covering the topics raised in this article.

How is net worth calculated, and what items are included or excluded?

Net worth is calculated by subtracting total liabilities (what you owe) from total assets (what you own). To summarise, assets include cash, investments, and property. On the other hand, liabilities encompass loans, debts, and other financial obligations. In terms of what’s excluded, personal possessions aren’t often included, unless you have collected valuable antiques and art.

At what net worth do I need a wealth manager?

There’s no fixed net worth requirement for hiring a wealth manager. It is very much a personal choice. Those with significant wealth will benefit from working with a wealth manager as they can advise on reducing tax, and maintaining their financial position. On the other hand, if you are at the start of your wealth-building journey, they can help you form a plan, and advise on where to invest your money.

Related reading: At what net worth do I need a wealth manager?

What investments are most effective for increasing my net worth?

Effective investments for increasing net worth typically include investment funds, ISAs, property, and pensions. Diversifying investments across these assets can mitigate risk while optimising the potential for growth over time. Lastly, Venture Capital Trusts, or Enterprise Investment Schemes are options for high net worth individuals. However, they are riskier investments, so always get professional advice and act with caution.

How do you increase your worth whilst balancing the need for liquidity and cash flow?

Increasing net worth while maintaining liquidity involves diversifying investments, keeping a portion of assets in easily accessible forms, and planning for short-term and long-term financial goals to ensure both growth and cash flow needs are met.

Can increasing your net worth have tax implications, and how can you reduce them?

Yes, increasing your net worth can lead to tax implications. This can include capital gains and inheritance tax. Looking at tax-efficient investments (pensions and ISAs) and careful estate planning can help to reduce and avoid unnecessary taxes. Consider speaking to an experienced financial planner about how to plan for, manage, and reduce taxes.

What role does debt management play in increasing one’s net worth?

Effective debt management is crucial for increasing net worth. It involves prioritising high-interest debt repayment, refinancing existing debts to lower interest rates, and avoiding new debts. As a result, by managing and reducing your debt, you increase your to invest and grow your wealth.

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