You can see the cars roll by and know you won’t ever own one of those, or maybe you’re okay with that. Or perhaps you’d like to take advantage of some deal but your budget doesn’t allow for such purchases. It’s not easy to find extra money for all of the things you want and need, but there are many small ways to keep more cash flow in your pocket. No matter how much you earn, it’s possible to reduce some expenses and increase assets.
The financial stability of an individual is denoted by his or her net worth. The amount, which an individual is estimated to earn in future after selling all the assets and liabilities, adds up to form this derivative. It can be calculated by subtracting total debts from total assets. Earning a higher income increases the net worth of an individual, but there are other ways also.
Here are some ways to kick off your plan.
1. Buy life insurance
To build up your net worth, you need to invest in assets that gain value in the long run. It includes liquid assets like savings and retirement accounts and tangible assets like real estate property. Is life insurance an asset? Whether it is an asset depends on whether you financially benefit from the life insurance policy while you’re alive. So, term life insurance is clearly not an asset because it only pays out to your dependents when you pass away.
But life insurance with a cash value such as whole life insurance is considered an asset. You can take out funds from your life insurance policy while you’re alive. With this type of life insurance, a percentage of your premium goes into a cash value savings account. The amount will depend on your policy. Since the cash value of the life insurance policy grows over time, it offers lifetime coverage.
Hence, you can sell it as a life settlement when the policy is no longer needed. Whole life insurance can undoubtedly offer passive tax-free dividends when appropriately structured. Meaning, this life insurance policy can provide an extra source of income if necessary, probably more than how much do insurance agents make. With these things in mind, get insured now.
2. Trim expenses
Keep in mind that the less money you spend, the more money you can accrue in net worth. That said, make sure to do a budget review. Look at your expenses and determine where you can cut back. Note that even a dollar here and there can accumulate a large amount in a year. So, consider the costs you can downsize and what costs you don’t need.
3. Invest in mutual funds and stock ETFs
Mutual funds and exchange-traded funds consist of a collection of similar assets like commodities, bonds, and stocks. Stock ETFs can be sold or bought through a stock exchange. On the other hand, mutual funds can be bought directly from the company that handles the fund. One of the best ways to build long-term wealth is to expose yourself to the stock market through mutual funds and ETFs. When you decide to invest in these assets, committing to them is crucial.
Be comfortable with market fluctuation. It’s essential to stay on the course and let your money compound. Once you get comfortable with your investment portfolio, you can start taking more targeted strategies for towering above markets over time. Remember that these investment options are not suitable for everyone. They require a level of disciple and conviction to stay invested in the market.
4. Pay off your debt
As soon as you are able, make sure to pay off all your debt. Take note that the money you owe can be used to build your net worth. However, know the penalties applied for early payment to avoid them. Consider following the snowball method to repay your loans. In this method, you make minimum payments every month on all your debts but put additional funds into the lowest-balance loans. Doing so will quickly free up money that you can use to pay off your debts or invest.
5. Build an emergency fund
Set aside some money to cover emergency expenses like car repairs or sudden health problems. Building an emergency fund is one sure-fire way to increase your net worth and grow your assets. It can help you avoid taking out more loans and stay financially afloat. You can start small and when you can afford to save more, you can try to save more for your emergency fund.
Final thoughts
Be sure to talk to a financial advisor or an account to learn how you can improve the state of your finances. Don’t be ashamed to use the resources available or ask for help. Also, ensure to create a financial plan for you to follow. When you have money goals that you want to achieve or reach, you’ll be more motivated to nail them down and put them into action. Monitor your progress and determine what you need to improve to ensure you reach these goals.
