How to Build The Ultimate Net Worth
For everyone the term ultimate net worth means something different. For some it might mean freedom and for others it may mean security.
Whatever it means for you this guide will help you create your ultimate net worth.
How to Build The Ultimate Net Worth
The first step in building your ultimate net worth is taking an inventory of your current financial situation. Since the equation for calculating your net worth is your assets minus your liabilities it is important to have all your assets and all your liabilities listed in one place. It is also good to know where you are starting so you can measure yourself throughout the process of building your ultimate net worth.
After you have your financial inventory completed you should make some financial and personal goals. It is important to include personal goals because you never know when they may change and ultimately affect you financial goals.
Your goals should consist of short term and long term goals. Your short term goals should consist of daily, weekly, monthly, quarterly, and yearly goals. Anything longer than one year will fall into your long term goals.
After your goals are completed you should make a budget. It is important to have a budget because it is your play book as to how your money is spent and saved. While creating your budget you will more than likely find things you can cut out and put that extra money to savings. The more things you can cut out the better.
After your budget is complete you should put an emphasis on paying down all your debt. Since your net worth equation is assets minus liabilities it would be nice to have a zero in the liabilities part of the equation.
You will want to start by paying of your variable rate debt. Since your variable rate debt can have the rate change at any time it is important to eliminate that first. Example of variable rate are credit cards, variable rate mortgage, and variable rate student loans.
After your variable rate debt is taken care of it is important to pay of your fixed rate debt. This is more than likely your mortgage. Your home is the biggest piece of your net worth, so if you can add its full value to your asset side of the net worth equation you will be sitting pretty.
After you debt is paid off you should look at adding to the asset side of your net worth equation. The first place to start is your 401k. Since your 401k is funded with pre tax dollars you instantly get at least a 10% or more gain depending on your tax bracket. With your 401k you also may be eligible for an employer match, which is free money.
After your 401k is funded to its max each year you should look at other investments. IRAs, CDs, MMA accounts, securities, and real estate are all suitable investments. You may be questioning real estate as an investment given the recent challenges in the real estate market, but think about it…it is the only asset we can produce more of. If you can afford to add real estate to your portfolio you should because eventually prices will stabilize and eventually appreciate.
After you have started on your way through the above steps you should check your progress occasionally. You set time aside at least every quarter to assess your current financial situation. If you would like to check it more often you should look at a check up every two months or monthly. It is all up to you how often you want to check in, but you should space the check ups so you can clearly see your progress.
Tips & Warnings
- This process will take some time. It is not a quick fix or get rich quick scheme.
- Create a free blog and share it with your friends and family. If you update it frequently it will make you more accountable for your actions.
- It will take a lot of time and effort.