What is net worth? Your net worth is the financial value you have after deducting all your liabilities from your assets. Think of your net worth as the vitality to your personal finances.
An over-simplified example would be:
You have $10,000 in savings but owe $2,000 on your car loan and $5,000 in student loans. Your net worth is then $3,000.
Or, you have $10,000 in savings but just financed a brand new vehicle for $35,000 so your net worth is -$25,000. In this scenario you owe instead of own.
Building your net worth can be a challenging yet fun experience during your financial growth.
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So, what are some strategies I can use to grow my net worth?
I’m going to walk you through 5 ways I’m personally growing my own net worth.
Anyone can use these very simple strategies to have money multiplying for them.
1. Open a high-yielding savings account
What better way to grow your net worth passively than by having a bank consistently pay you a percentage per month for holding your money.
This is exactly what high-yield savings and money market accounts do. I’ve personally seen accounts generating $20 per month in passive income to a little over $200 per month.
This type of account is a better alternative to your traditional savings account from Wells Fargo or Bank of America.
How does this work?
One thing you have to understand is that banks are always moving money. They are always investing money which is why they’re so powerful.
The instance you deposit any money into your bank account, they’re already investing it. Huge commercial banks like Wells Fargo and Bank of America will typically only pay you a penny per year for banking with them.
Ever notice that $0.01 or $0.02 randomly deposited into your savings account? Yup, that’s what you earned for banking with them.
High yielding savings accounts simply pay you a higher percentage for banking with them.
How safe are these bank accounts?
Most of these banks are FDIC insured and can insure up to $250,000. Just like Chase, Bank of America, and Wells Fargo.
What banks offer high-yield savings accounts?
It is important to note that APY rates do change depending on the circumstances of our economy. They were higher previously to the pandemic and have gone down during the pandemic.
This is completely normal though and should not stop you from generating passive income to increase your net worth.
You can calculate an actual interest earned on an investment using this APY calculator.
Here’s are two banks that offer high-yielding savings and money market accounts:
*Rates are applicable to change
Now, although these aren’t very high at the moment, you certainly get a better APY than with a traditional account.
Before the pandemic, my high yield savings account had an APY of 2.05%. I didn’t include BMO Harris on the list because the account now earns less than the others on the list above.
There are more banks I didn’t include simply because they’re around 0.20% and I want to provide you with the highest return possible at the moment.
How can I get the best out of my high-yield savings account?
- Use it for your emergency fund and watch it grow
- Deposit money every month to accumulate compound interest
- Don’t withdraw unless it’s for an absolute emergency
A high yield savings account is not going to make you rich. I personally think the best way to utilize this account is by putting money in it you don’t intend on using unless it’s for a priority emergency.
This strategy allows your emergency fund to grow a little passively without collecting dust in a traditional bank account.
Can I withdraw money from a high-yield savings account?
Yes. However, this is usually done through an ACH transfer which can take up to 3 days to see the balance reflect in your personal bank account.
For this reason I suggest funding both your high yield savings account as well as you personal savings account. Always have liquid funds available.
Your personal savings account should have enough money to take care of something quick and unexpected. Dave Ramsey recommends $1,000 if you’re still paying off debt in efforts to continue paying off debt. I prefer more, but everyone’s situation will vary.
Now that you have your money bringing back more dollars every month, I’m going to discuss a little more about purchasing assets to further grow your net worth.
2. Purchase stocks
Purchasing stocks has never been easier with all the online platforms now available to you. The stock marketing on average provides a 8% return during a period of 10 years.
To put things into perspective, I earned a whopping 40% return of investment my first year investing in the stock market.
What are stocks?
Stocks are assets in companies you can invest in through the purchase of shares. Shares are fractions of a business that you can own through the purchase of said stocks.
For example: If you wanted to invest in Apple, you would invest in the (AAPL) stock and purchase ten, fifty, or one hundred shares of the company.
What are the risks of stock investments?
Most people instantly think risk when they hear the words ‘stock market’. The truth is the only risk is not taking the risk. In my honest opinion, not investing and having your hard earned money collect dust is the real risk.
Your mindset needs to change so you think ‘abundance’ when you think of the stock market.
“The stock market is a device for transferring money from the impatient to the patient.”Warren Buffett
What scares most early investors is when they see their first investments take a dive. They spend $50 on a share and a week later it’s worth $44, then they sell the share and lose $6. This is the game plan you want to avoid. Stock investment for the most part should be a long term play.
In this scenario, the strategic thing to do would be to purchase a second share at $44 at a discount and hold it until their worth increases over time. By the time the share is worth $55 your first share would have gained a return of $5 and your second share would have gained a return of $11.
This ladies and gentlemen is how a total investment of $99 can earn you $16 without having to work and give your time to someone else for it. By purchasing assets, you’re able to further grow your net worth.
I recommend you only invest in companies you believe are great companies and have room for plenty of potential growth. These are the companies that are always striving to get better. And when they do, your investments will grow alongside with that company.
How can I invest in the stock market?
You can invest in the stock market through online platforms such as Vanguard, Fidelity, E*Trade, Ameritrade, and Merrill.
Once you create an account with one of these platforms you’ll be able to connect your bank and begin funding your brokerage account so you can purchase stocks.
3. Diversify your income
Most wealth builders have increased their net worth by diversifying their income. Multiple streams of income is what has allowed the wealthy to stay highly successful.
Having more than one stream of income allows you to pivot should one stream lose momentum. During the pandemic millions of people lost their only source of income. Those with multiple streams of income were able to pivot and thrive.
However, when all your streams of income are doing extremely well then you will be doing extremely well.
What are some ways I can diversify my income?
This is the fun part because diversifying your income varies from person to person. Ask yourself, what are you good at? What do you enjoy doing?
You may be working a 9-5 but enjoy making music. Distribute your music online and get paid for every stream. Perhaps you really enjoy driving, take on a ride sharing or food delivery service.
You can find several ways to make money using my side hustles tab where I provide my readers with creative ideas to increase their income.
One thing I will always recommend is building a scalable online business. This can be a blog, YouTube channel, or other streaming service.
The more income you’re able to generate means the more resource you will have at your disposal to begin growing your net worth.
4. Become debt free
What better way than to liberate all your income sources by becoming debt free.
When you’re debt free you can really tackle savings and investments to grow your net worth. Yes you can have debt and still have a positive net worth; however, by becoming debt free you can maximize your investment capabilities.
Freeing up your income capabilities will provide you with the best investing results. This is primarily because when an opportunity comes, you’ll be ready. You will not lack the means to invest like you mean it.
If you have debt, focus on building a small emergency fund then paying off your debt so you may continue to grow your net worth.
Hacks to avoid getting in debt:
- In need of a vehicle? Purchase it cash.
- Learn to generate money without a college degree.
- Avoid payment options provided by store retailers.
- Keep your credit card spending limit below 30%.
Debt has a lot to do with our spending habits. If most people cannot manage $1,000 then they won’t be able to mange $10,000 and so forth. Invest in your future self and eliminate debt. You will thank yourself later.
5. Live below your means
This last strategy on the list is very powerful. Very few people have the discipline to stay put as their income level increases.
Living below your means, just like becoming debt free can unlock your savings and investing capabilities.
To live below your means simply means your expenses do not exceed your level of income. In other words, you spend less than you earn.
Keeping your expenses low as you continue to increase your income is a guaranteed way you can grow your net worth even if you don’t invest. This is why this strategy is so powerful.
If you were making $80K a year and got hired somewhere else for $100k a year, keep living the same lifestyle at $80K while you use the additional $20K to build your net worth.
More than often, people will fall into income creep lifestyle where they get a raise and they upgrade just about everything. This is how even high earners have trouble getting off the never-ending cycle of debt and living paycheck to paycheck.
Don’t be average, continue to increase your net worth so that you can look out for your future self and and for your family.
A few last words from Frank Nez
Growing your net worth takes time, serious dedication, and work. There will be times where you’re doing great, being consistent and something happens where you have to take money out.
It’s normal, it’s life. Do not get discouraged when you face roadblocks that halt your growth. Instead, continue to set goals to grow your net worth and make it happen.
Follow these strategies and you’ll be on the path to long-term financial success.
FAQs on Net Worth
Can net worth go down?
Your net worth can be zero if your assets and liabilities break even. A net worth at zero is much better than having a negative net worth.
Can net worth be zero?
Your net worth can be zero if your assets, and liabilities break even. A net worth at zero is much better than having a negative net worth.
Can net worth be negative?
If your liabilities are greater than your assets then your net worth will be negative. This is most common amongst younger people enrolled in college.
Why is net worth important?
Net worth is important because it reflects the health of your financial situation. Whether you’re negative, break even, or have a positive net worth, it says a lot about how you manage your finances.
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