Increasing your net worth can have numerous benefits; it’s more than just bragging. By increasing your assets, you can, for example, retire years earlier. It also leads to financial security, allowing you to worry less about money and enjoy the things that are important in life.
And while growing your net worth may seem like a challenge, it doesn’t have to be. It’s true that it will probably take years rather than weeks, but setting up the right systems isn’t that difficult. Following some or all of these steps can help you grow your wealth and ultimately achieve your financial goals.
Key learning points
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Your net worth is equal to all your assets (i.e. cash and investments) minus your liabilities (debts).
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You can significantly increase your net worth by maximizing contributions to retirement accounts and taking advantage of employer matches.
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Approach high-interest debt, especially credit card debt, strategically by paying more than the minimum.
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Use budgeting tools to streamline your spending and identify ways to save money. Pay attention to important areas such as housing, transportation and food.
1. Increase your pension contributions
Increasing pension contributions is an excellent way to grow your wealth. However, people don’t often take full advantage of this strategy. In fact, 56 percent of Americans in the workforce say they are behind where they should be in retirement savings, while 37% say they feel significantly behind, according to a recent Bankrate survey on retirement savings.
The 401(k) contribution limit for 2024 is $23,000. In addition, persons aged 50 or older may contribute an additional contribution of €7,500. If you’ve reduced your expenses as mentioned in the next step, you already have one way to increase your retirement contributions.
Contributing more to a retirement account can have a number of benefits. These accounts are often tax-deferred and many come with employer matching. At a minimum, you should increase your contributions up to your employer’s limit, if you are not already doing so. This is an easy way to double your money. But thanks to the favorable tax treatment of retirement accounts, it’s usually a good idea to maximize your contribution to them before investing in other ways, such as with a taxable investment account.
Finally, the sooner you can start building your nest egg, the better. About 21 percent of American adults say their biggest financial regret is not starting saving for retirement early enough, according to Bankrate’s financial regret survey. To maximize the power of compound interest, give yourself as much time as possible to save, even if you have to start small at first.
2. Reduce your expenses
Cutting your expenses isn’t fun, but it can be a very effective way to grow your wealth. One way to reduce your expenses is to use budgeting software or an app. Focusing on the “big three” of housing, transportation and food can be a very effective way to save money. Reducing your housing costs isn’t always an option, especially if you have a family involved.
However, reducing your transportation and food costs may be more realistic. For example, if you buy food in bulk and eat out less often, you can save hundreds of dollars per month.
3. Pay off high-interest debt
High-interest debt can severely limit your ability to grow your net worth. Unfortunately, credit card debt is a common part of many people’s financial lives. According to Bankrate’s credit card debt survey, 46 percent of credit card holders currently have monthly debt. Paying off these balances is not easy, but it is a must if you want to grow your net worth.
If you have significant debt with interest rates higher than 10 percent per year, you don’t necessarily have to pay it off all at once. However, with credit cards, paying just the minimum will leave you in debt for years and paying thousands of dollars in interest.
First, focus on paying everything you can above the minimum payment. Doing this will reduce the interest you owe, which can lead to a domino effect. You can also use a method like the debt snowball or debt avalanche to pay off your debts.
4. Save for emergencies
Having an emergency fund can help you grow your wealth, albeit somewhat indirectly. For example, you can build up $5,000 in an emergency fund over a few years, but it’s not the $5,000 increase in your net worth that makes the difference.
The biggest advantage is that we can avoid the high-interest debts mentioned earlier. You never know when you’ll need to replace your refrigerator or make an unexpected trip to the emergency room. According to Bankrate’s Credit Card Debt Survey, 43 percent of credit card holders with credit card debt say unexpected or emergency charges are the main reason they have that debt.
Without an emergency fund, you might be forced to put these expenses on credit cards or take out personal loans. That can lead to a vicious cycle of never-ending interest payments, significantly eroding your net worth. Having an emergency fund helps you avoid that cycle, allowing you to grow your wealth.
Yet building a financial safety net is not always easy. More than 80 percent of Americans have not increased their emergency savings in 2023, according to a recent Bankrate emergency savings survey. To increase your financial cushion, consider setting up automatic deposits into your savings account to get into the habit of “paying yourself first.” You can always start small and increase your contributions over time.
Use Bankrate’s simple savings calculator to estimate the growth of your investments over time.
5. Renegotiation/consolidation of loans
Renegotiating or consolidating your loans can save you a lot of money in the long run. You may have been locked into a higher interest rate when you took out the loan, perhaps because you had bad credit or no credit. But if you’ve consistently made your payments on time and/or your credit score has improved, you may be able to refinance your loans at a lower rate.
Keep in mind that this isn’t always the best way to go. For example, one way to refinance federal student loans is with a private lender. However, that could result in giving up some consumer protections or access to income-driven repayment plans, so refinancing may not be the best option in that case. Whether refinancing is right for you depends on your unique circumstances.
6. Keep your cars as long as possible
If you’re like most Americans, you probably live in an area where driving is a daily necessity. That’s why owning a car is a must. But cars are a depreciating asset; you’ve probably heard that cars lose 10 percent of their value once you leave the dealer’s lot. That might be an exaggeration, but it’s true that they tend to lose more than 10 percent of their value in the first month, according to Carfax data.
In other words, if you buy a new car every few years, you’re constantly at the mercy of rapid depreciation. By keeping cars longer, you can break that cycle. Of course, all cars have a limited lifespan. At some point, they become more expensive to maintain than the money you save by avoiding excessive depreciation.
It can be difficult to know exactly when that point is, but if you’re making expensive repairs like replacing the transmission, it may be time to consider a new vehicle.
7. Increase your salary
Increasing your salary is easier said than done, especially if the job market where you live isn’t the strongest. However, if you want to grow your wealth, there is only so much you can optimize with your finances. For example, if you’ve done everything else on this list, increasing your income may be the best way to grow your net worth.
But you don’t necessarily have to pick up a side job or even change jobs to increase your salary. The first thing you can do is ask for a promotion at your current job. You would be in good company too. Nearly two-thirds (64 percent) of working Americans have received a raise at some point since October 2023, according to Bankrate’s raise survey.
There are many ways to build a case for yourself when asking for a raise. You can mention specific wins you’ve had at work over the past year. You can also research salary ranges for your job in the area where you live. Finally, you can learn a new skill or earn industry certifications to further increase your value.
In short
Growing your net worth can seem like a challenge, but it doesn’t have to be. If you follow the steps mentioned here, you will find that saving money becomes easier than you expected. And when you calculate your net worth, that number could be much higher than you ever thought possible.
