Steps to Higher Net Worth | Savings and budgeting

If you’re someone who makes New Year’s resolutions, building a higher net worth is probably on your list.

Establishing a plan to achieve this goal is a first step, but be aware that results will not come quickly. As Scott Alan Turner, a certified financial planner in Dallas, says, “Wealth is built over time – not overnight.”

“When I teach people how to build wealth, one of the best things they can do is be patient,” he says. “Compound interest works if you allow it. The time it takes $500 to double to $1,000 is exactly the same time it takes $50,000 to double to $100,000, or 500,000 $ to reach $1 million.

That said, to accumulate more wealth in 2022, try these suggestions from financial advisors serving wealthy clients.

  • Update your budget.
  • Boost your savings.
  • Pay off the debt.
  • Increase pension contributions.
  • Invest in yourself.
  • Reduce your tax bill.
  • Improve your career.
  • Audit your insurance.

Update your budget

If you already have a budget – and I hope you do – analyze it 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.

Brian Stivers, investment advisor and founder of Stivers Financial Services in Knoxville, Tennessee, suggests that you start the year by breaking down your monthly budget into categories of “major lifestyle expenses” and “non-essential expenses.” the latter may include a gym membership. or restaurant purchases.

“Next, make an informed decision about how much discretionary income you have available for your financial goals,” Stivers says. Once you have an amount in mind that could be used for retirement or a savings account, start putting that money aside each month.

Boost your savings

If you don’t have one, you absolutely need a savings account. Your savings account, which could also be your emergency fund, needs to grow because if you borrow money from yourself, you’ll take on less debt, which will increase your net worth. Without a savings account to put money aside and help organize your finances, it’s hard to imagine getting rich.

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 come across an investment opportunity, a solid savings account can help you invest. As long as you pay your bills, there’s no downside to fattening a savings account and increasing your net worth.

Pay off the debt

Mark Charnet, founder and CEO of American Prosperity Group, in Pompton Plains, New Jersey, says paying down debt is a crucial first step to building wealth. Wealthy 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 increases.

“The first rule to increasing your net worth is eliminating debt and should accompany every financial plan,” says Charnet. He adds that you may not be able to wipe out all of your debt quickly, but when paying off credit card debt, you’ll always want to pay more than the minimum required.

However, when it comes to your mortgage, Charnet says there’s currently no need to shell out more than your payment. “Some financial advisers suggest that it would be better for a person to accelerate their mortgage payments,” says Charnet. “However, with mortgage rates at historic lows, in the opinion of this financial adviser, this is the last thing to do.”

Increase pension contributions

Next, increase the funding of your retirement plan. Many experts suggest devoting 10-15% of your annual income to retirement. If you are far from that, aim for 1% or 2% more savings. Small additional contributions, if you put them in with each paycheque, will accumulate 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 advisers suggest doing both at the same time – assuming it will take years to pay off everything you’ve got. must.

“Take a balanced approach to investing the money found in your budget and reducing your debt,” advises Stivers. “If you have $500 a month for financial planning and you have credit card debt, take half for debt and the other half for savings and investments.”

Invest in yourself

While it’s always a good idea to invest in your future by contributing money for retirement or your children’s future, investing in yourself now could increase your net worth.

For example, if you go to college, in theory you could get a better job. Of course, it depends on the type of degree you get. In 2021, the National Association of Colleges and Employers analyzed which master’s degrees tend to generate the highest earnings. A master’s degree in biology will earn graduates about 87% more than without it. A master’s degree in accounting will result in an average salary increase of 4%. You’ll also want to weigh your potential income against your college debt.

If you hire a career or financial coach, you might get information that will lead to a promotion. Investing in yourself won’t always help you get rich, but if you think there are obstacles preventing you from living your best life, addressing those issues can free you up to increase your income and accumulate wealth. richness.

Reduce your tax bill

Everyone should pay their fair share, of course, but taking advantage of the tax breaks will help your net worth grow.

Tax credits, such as the Child and Dependent 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. For example, if you are single and earn $86,376 per year, your tax rate is 24%. By following the advice of a financial advisor and reducing your taxable income by just one dollar, for example by making qualified charitable donations, your tax rate would drop to the next bracket – 22%.

Again, no one is suggesting that 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, such as taking tax deductions or tax credits, why not?

Improve your career

According to career website Zippia, for example, the average annual salary for an American employee is $47,520, while for a business owner, that figure jumps to $95,559. Of course, things may not go your way. Many businesses fail. But if yours does and you own a successful business, you might find that your net worth increases dramatically.

Audit your insurance

Insurance can be extremely expensive, as self-employed people with health insurance can tell you – or parents insuring teenage drivers.

Maybe you have excellent insurance. But if you’re often scared every time you pay your monthly premiums for health insurance, life insurance, or auto insurance, or wonder if you’re getting a good deal on your home or renter’s insurance, do you a favor and compare prices.

For example, last year the Centers for Medicare & Medicaid Services released data showing that returning consumers could save, on average, 40% of their monthly premiums thanks to improved tax credits that were passed in the American Rescue Plan Act of 2021. If you can reduce any of your insurance premiums without significantly reducing coverage, you can put the savings into your retirement or other investments to increase your net worth.

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