Welcome to FAT Tuesdays, a weekly series featuring Financial Advice Tips each Tuesday throughout the month of April to help you get on the good foot when it comes to your finances. This week, we’re tackling, *drumroll please*, your personal net worth – what it is, why it matters, and a few simple strategies to increase it.
As with most things in this life, women of color face unique challenges when it comes to attaining a positive net worth. For example, a recent post by Clever Girl Finance reported that 45% of single Hispanic women reported a negative or $0 net worth. Similarly, a study published in 2010 found that while the median net worth of single white women ages 36-49 is $42,600 — 61 percent of the median wealth for same-aged, single white men — single women of color in the same age group have a median wealth of just $5.
Sobering, we know. That said, having the right info and tools can go a long way in helping you create and maintain wealth.
So, what is net worth, anyway?
Well, simply put, your net worth equals the amount of your assets minus your liabilities. It’s the value of everything you own (Think car, house, jewelry, cash, investments, exotic animals (hehehehe) minus everything you owe such as your student loan debt, car payments, credit card debt, etc.
I’m intrigued. Tell me more.
Your net worth is akin to a physical. It’s an essential financial check-in that lets you know where you stand today in terms of your financial health. For example, a positive net worth indicates that you’re either meeting your financial goals or are well on your way to doing so.
A negative net worth, on the other hand, doesn’t necessarily mean you’re doing anything wrong. It just means that your current liabilities outweigh your current assets. This is totally normal if you’re just starting your career journey and/or obtained student loans to finance your education.
Also know that your net worth, much like your credit score, fluctuates over time, which is why it’s important to keep a pulse check on it.
And this is important because…???
Great question. Knowing your net worth is a great start to planning for your financial future. And we all know that you can’t get to your destination without understanding where you are in relation to said destination. So, once you have calculated your net worth, you can begin to set up a financial roadmap to help you increase that number.
So, how do I increase my net worth and subsequently conquer the world?
We like how you think. Your path to world domination starts with a few key strategies.
- Make a plan to reduce your debt. – One of the fastest ways to increase your net worth is to pay down your debt. Think making multiple payments on your installment loans each month so as to more quickly pay down the principal, paying off your highest-interest credit cards first, and slashing expenses wherever possible can go a long way in reducing and eliminating debt.
- Save ferociously. – If you aren’t setting aside money right now, START. Whether it’s $20 a week or $2,000/month, it is critical that you build up your savings account. For starters, doing so helps cover emergency expenses that you might otherwise be tempted to charge, which results in more debt. Your savings allows you a cushion in times of financial stress. Plus, that extra money in the bank boosts your cash liquidity, upping your net worth.
- Invest, Invest, Invest! – Once you get to a happy medium with your debt (You’re actively decreasing it.) and your savings (You’re actively upping it.), it’s time for you to start investing. An easy way to start investing is by contributing to your 401(k). A good tip is to invest the same amount that your company matches. For example, if your company matches employee contributions up to 3%, then it behooves you to contribute 3%. This way, you end up saving 6%, thus doubling your investment of 3%.
- Consult the professionals. – Getting serious about your money goals will, at times, require the wisdom, help, and guidance of an expert. Consider engaging the help of both a financial planner and a CPA. The former can help you effectively strategize ways to increase your wealth thereby fattening your wallet, while the latter can assist with you tried and true methods for reducing your tax burden and advising you on various tax advantages that may be available to you each year.