Your net worth is more than just your bank account balance. It is an indicator of your financial wellness. To find out the answer to the question “What is my net worth?”
Take your overall liabilities and subtract them from your total assets. If you’re attempting to figure out which assets are the most valuable or would otherwise increase your net worth, here’s a list of 15 key assets to consider.
1. Owning Your Primary Residence
One of the most common ways for people to make a big difference in their net worth is to buy a house. Instead of the standard 30-year mortgage, choose a 15- or 20-year term to pay it off faster, resulting in a large asset and interest savings. If you decide to sell after paying off your mortgage, capital gains are tax-free up to $500,000 if you are married and filing jointly.
In some expensive cities, renting may be a better financial choice than buying, depending on how much the cost of ownership is compared to the total cost of living.
2. Second Residence
Short-term rental sites like HomeAway, VRBO, and Airbnb are great ways to make passive income with a second home. At first, you can use the extra money to help you pay down your mortgage faster.
After you pay off the mortgage, you’ll own a big asset while also enjoying passive income from renting it out if you want—both of which can result in a significant increase in your net worth.
3. Retirement Funds
Even if you don’t plan to retire for a long time, saving today can help you accumulate wealth. You may start saving for retirement right now, and tax-deferred accounts, such as a 401(k) or a traditional IRA, can help your savings balance grow faster.
Set a goal to save as much as you can for retirement by giving a certain amount from each paycheck, especially if your employer matches your contributions. By making savings contributions a budget item, you will consistently put money aside, allowing it to grow and boost your net worth.
You might not have thought about it, but your education is one of the most valuable things you have. If you decide to invest in your own education to get a better job or move up in your career, it could pay off financially in the long run. And your education does not have to stop after you earn your bachelor’s degree.
You could take out a student loan from a credit union if it has in-school student loan alternatives and parent loan options through Sallie Mae Bank or a lending partner to help pay for the cost of continuing education classes or certifications.
Consider this if you’re still not convinced: With a 2% interest-bearing savings account, you would have to invest $300,000 before receiving $6,000 in additional income, which can come much more rapidly from a promotion or an annual increase earned as a result of additional education.
5. Rental Real Estate
When you buy rental properties with money from a bank, you increase your net worth. Instead of going into your bank account after you start renting out the houses, use the income to pay off the mortgages. Your properties will accumulate equity, and their market worth will rise over time.
If you aren’t ready to buy homes on your own but have real estate knowledge, you can engage a group of investors to come up with the down payment in exchange for a portion of ownership in the property. Then, if you were able to get financing for the rental property, you can talk to the investors about a management fee.
Having good health is an important advantage for increasing your net worth. It enables you to work longer hours and be more productive while saving money on medical checkups, treatments, and procedures. Invest in your health by eating right, exercising regularly, and seeing your doctor for regular checks.
7. College Savings
Many parents purchase a 529 college savings plan for their children, increasing their net worth until the money is needed for school. 529 plans grow tax-free and make tax-free distributions as long as they are used for eligible educational costs.
The monies can also be transferred among recipients without incurring any penalties or taxes. For example, cash could be distributed among several siblings.
8. Maintain Your Home
Because your home is likely one of your most valuable possessions, it makes sense to invest in its upkeep. Replace your roof, maintain your gutters, and service your HVAC system on a regular basis to earn a greater return when it comes time to sell.
If you don’t take care of your house, on the other hand, potential buyers may be able to use the fact that it isn’t in good shape to get a lower price, leaving you with less money in the end.
Investment can be a fantastic source of income, but it is not a sure thing. Before you make an investment, do your homework. You’ll also need a solid understanding of when to buy and sell stocks.
You don’t have to do it alone if you’re new to the stock market. Get the counsel of an investing advisor who can help you choose the finest stocks for your portfolio based on the sort of risk you’re willing to take and the return you want to generate.
10. Household Items
You might not think of a new refrigerator or laptop as a method to increase your net worth, but think about the overall picture. It makes sense to buy the best-quality, longest-lasting products you can afford, just like it makes sense to buy a car, but you should also think about how quickly these things lose their value.
Paying for repairs and replacing appliances can be expensive, but if you buy high-quality items, you’ll have more money in the bank, which will raise your net worth.
Read reviews, compare products, and find the best deals to find out which brands and models will give you the best return on your money.
11. Private Lending
Being someone else’s banker allows you to earn passive income that can help you increase your net worth. Private loans, notes, and trust deeds are types of investments in which money is loaned to private individuals or corporations in exchange for interest.
With these investments, you’ll still earn a steady rate of return regardless of whether the underlying asset’s value rises or falls, which translates into funds you may reinvest to increase your wealth.
To protect your interests, make certain that you understand everything there is to know about a potential investment. You can do this by seeking guidance from an experienced professional, such as a broker, a corporation, or a fully licensed partner.
Collectibles can be more than a pastime. They can increase your net worth, especially if you become a specialist in a certain field. Fine art, antiques, and rare wines are all areas to consider investing in. Nevertheless, just because a collector item was profitable in the past (for example, Elvis memorabilia and general World War II things) does not indicate it is currently a viable investment.
That is why it is critical to educate yourself. Visit renowned pawn shop and gallery owners, as well as other industry specialists, to obtain the knowledge you need to invest in collectibles that will increase your bottom line.
13. Permanent life insurance
Most individuals believe they cannot receive their life insurance unless they die, but this is not always the case.
The premiums you pay on a permanent life insurance policy, such as a whole life, universal life, or variable life policy, increase tax-deferred. When the policy reaches a particular cash value, you can withdraw the funds tax-free. The collected cash, less any costs, is an asset that can help you enhance your net worth.
If you want permanent life insurance, you might want to work with an independent life insurance broker.
The car you drive might significantly reduce your residual income. Although flashy sports cars and luxury vehicles are appealing, they are also the most expensive to insure, according to Insure.com.
Before you buy a car, look into things like its dependability, safety features, long-term maintenance costs, and insurance costs to get the most for your money. If you’re not sure where to begin, you might use a car-buying service to simplify the process.
You won’t have to buy a new automobile every few years if you buy a trustworthy one that will retain its value for years after you pay it off.
15. Earnings from a Second Job
Picking up a side hustle can help you make some additional money. For as long as you save or invest money, your net worth will grow.
You could find things and sell them for a profit, sit in people’s homes, drive for Uber or Lyft, work as a virtual assistant, or make resumes.