Your net worth is a simple formula that calculates how financially wealthy you are. And in order to increase your net worth, you first need to know what your net worth is and how to calculate your net worth, so let’s start with that.


What is your net worth and how to calculate it?

As mentioned before, your net worth is a simple formula, but before we get to that, let’s first go over a few basic definitions.

Asset – This is anything of value that you own. Examples include your house, car, money, investments… If you are able to sell it for something, it’s an asset you own.

Liability – On the other hand, a liability is anything you owe to another individual or organization. The most common is loans, credit cards, and mortgages.

So, now for that formula:

Net worth = Assets – Liabilities

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For example, if I have $500,000 in assets, but $350,000 in liabilities, my net worth would be $150,000.



How to Consistently Increase Your Net Worth and Wealth Over Time

So now we know what the term ‘net worth’ is and how to calculate it, we can now delve into how to increase that number.

In very simple terms, you need to increase your assets and decrease your liabilities.

Let’s look at a simple action plan for you to do just that.


Step 1 – Know Your Net Worth and Budget

First things first, we need to work out our net worth.

So, list all of your assets (your home, if you own it, your car, the money in your bank accounts, any investments you have, collectibles you own…). Remember to use the current value for those assets, and not what you paid for it. Your car, for example, will depreciate in value (become less valuable) over time.

Now list all of your liabilities. What debts do you have? Do you have a mortgage or car loan? Student loans? Credit cards?

With those lists, you can now calculate your net worth. Keep those lists and this calculation handy for later.

In addition to your net worth calculation, you also need to calculate your monthly/annual cashflow. This is simply the difference between your income and your expenses.

So, similar to your net worth calculation, list all of your income sources (your job, income from investments, self-employed income…), and then your expenses (your mortgage, bills, grocery and restaurant expenses…). Go through your bank statements with a fine-tooth comb and see what you are spending your money on.

Many use expense tracking apps or software, such as, Personal Wealth, or YNAB (YouNeedABudget).

Now, do this calculation:

Cashflow = Total Income – Total Expenses

Income - Expenses = Surplus Income
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You can do this month by month, or based on a year. If you are doing this month by month, remember your annual expenses (e.g. your car’s service and MOT, if you’re in the UK, insurance, if you pay that annually, payments to professional organizations…).

You will also want to keep this handy for later.


Step 2 – Pay Off Debt and Liabilities

Now you know how much you owe, you need to start a program to reduce this if this is high.

There are many books you can read about this, and if you are struggling with debt, I would highly recommend checking out the further reading section near the bottom of this page.

However, generally, you want to check what the interest rates are for each of your debts and liabilities and pay off the highest interest rate loans/debt first, while making minimum payments to all other loans and debts. Typically, this would be credit cards and/or personal loans.

After that loan is paid off, work your way down the list of debts, paying off the highest interest rate loans/debt before moving onto the next highest.

This is going to be your most efficient way of paying off your debt, as you will be saving on the heavy interest rates as soon as they are paid off.

However, in order to pay off debts, you need surplus income. If your expenses are higher than your income, we will need to sort that out first.


Step 3 – Lower Your Expenses

This is especially important if your expenses are higher than your income, but even if it isn’t, you want to maximize your surplus income to pay off your debt anyway (if you don’t have debt, then to increase your assets, but more on that a bit later).

How cutthroat you are with cutting your expenses depends on how dedicated you are to increasing your wealth and/or getting out of debt. It’s going to make some sacrifices but trust me, it will be worth it!

First look at your expense list and see what can easily be cut. Do you have any subscriptions your no longer use or forgot about? Can you cut down your grocery bill by going to a different store? Can you reduce how many times you get takeout or go to restaurants?

Then, look at if you are able to reduce any bills. Can you cut down your energy bill by switching to a different supplier? Could you cut interest payments on loans or mortgages by refinancing? Shop around for cheaper insurance with comparison websites.

Your goal is to get that total expense figure as low as possible.


Step 4 – Increase Your Income

Now you have lowered your expenses, the other way you can increase your surplus income is to increase the money coming in.

Could you ask your current employer for a pay rise? Could you go for that promotion coming up? Would moving to a different organization give you a higher salary?

Alternatively, could you start a side hustle, freelance, or take on a part-time job in your spare time? Or start a business? Sell stuff you no longer want online?

It may increase your workload, but it would significantly accelerate your debt payoff and/or savings. Try to strike a good balance, as not to completely destroy your mental health.


Step 5 – Save and/or Invest The Difference

Now you should have a surplus income. And once your debt is paid off, you’d then be growing your savings.

But now the fun stuff begins; getting your money to work for you!

Now is when you need to increase your income-producing or appreciating assets. Invest in things that either put money in your pocket month after months, such as rental real estate or dividend-paying stocks. Alternatively, invest in things that will go up in value over time, such as real estate, stocks and shares, and art or other collectibles.

You can also maximize your retirement contributions at work, especially if your company has a matching policy, as that’s just free money! There are also tax benefits of maxing out your Roth IRA, so this is an important thing to consider.

However, note that you should not invest every penny you have. You need to have an emergency fund that you are able to access for those rainy days. Investments can go south during a recession and you want to be able to hold those investments for the long term, as they will bounce back 99% of the time and increase your wealth. You don’t want to be in a situation where you need to sell your investments at the bottom of the market just because you need to pay for a car repair.

Your emergency fund should be at least 3-6 months of your salary. Another reason these savings are so important is if you were to lose your job, which many do during a recession, or more recently a pandemic, then you won’t be in dire straits.


So that’s how you increase your wealth over time and take charge of your finances.

Below you can find some further reading, which I highly recommend you do if you are serious about this.

I also recommend talking to a professional, such as a financial planner, who will be able to assist you with tasks such as refinancing debt, creating a budget and debt pay off plan, as well as suggesting the right investments for you.

You can also browse this website, as there are other articles here designed to help you do just this. More are added every week, so pop by every now and then, or subscribe to the RSS feed.

Take care and go become successful!


Further Reading

Broke Millennial, by Erin Lowry (Good for Beginners)

Rich Dad, Poor Dad, by Robert Kiyosaki (Good for Inspiration and Overall Wealth Building)

The Total Money Makeover, by Dave Ramsey (Good for Debt Management)

Think and Grow Rich, by Napoleon Hill (An Old Classic Everyone Needs to Read)

The Automatic Millionaire, by David Bach (Good for Overall Wealth Building)

Your Money or Your Life, by Vicki Robin (Good for Budgeting)