We’ve been talking A LOT about net worth recently (see The Secret to Money the Wealthy Know and I'm Worth What? How to Calculate Your Net Worth), mainly because it is (in my opinion) the most important number of your financial life. Yes, having a high salary is great – the more money someone wants to throw at me, the better; however, it doesn’t matter if you make $40,000 or $400,000 - if you spend all of what you make, you’ll both be in the same boat at the end of the day. Albeit, one may have a nicer boat, but both will still have to keep working year after year to afford them. Um, no thank you.
Having a higher net worth represents financial security, and with financial security comes the option to live your life how you want. That may be retiring early or running your own business from home or chasing a dream job you can’t financially manage to take quite yet. Whatever it is, that’s kind of freedom your net worth could give you and the reason it’s so important to focus on that number – I want you to wake up excited about what you do every single day. Life’s too short not to, right?
Thus, I’ve come up with a step-by-step solution for you to start increasing your wealth…and increasing it quickly. It’s vital that you complete each step before moving to the next; changing your habits can be overwhelming if you change too many at once, so start small and work your way up. By the end, you’ll be able to easily afford both your mortgage and your monthly mani/pedis . Oh, bliss, I hear you calling.
Step 1: Say Goodbye to the Joneses
I dedicated an entire post to this two weeks ago and listed it first here because it is THAT important. Living below your means is the first step to increasing your wealth because it’s the one thing a) you have most control over and b) that can have the most significant impact. Like I said before, even a huge pay increase won’t get you anywhere if you aren’t intelligently utilizing it.
I understand that you want nice things. I want them, too. Every time I walk through the liquor store aisle that bottle of Grey Goose is calling my name; however, I know that 2 drinks in I won’t be able to tell the difference anyway, so what’s the point in spending more? And back to the Smirnoff I go. Just think how big of an impact it would have on your financial life if you ate at home one more night a week or refurbished furniture instead of buying new or heck, even bought a smaller house. Transformational, people. It would be transformational.
LadyBoss Move: Go over your budget and find your holes. What is draining your finances that doesn’t need to be? Next month, pull a Dave Ramsey: allocate the total you want to spend on that category, withdraw that amount in cash from your bank, and put it in an envelope. When the cash in that envelope runs out, you’re finished for the month. For bills or rent, start looking for ways to cut those costs, find cheaper options, or cancel if possible.
Step 2: Out of Sight, Out of Mind
If you’re a millennial and aren’t already doing automating your savings, feel free to slap yourself in the face.
Automating your savings and retirement funds is the easiest way to ensure that you are allocating a portion of your money to your financial goals every month. Most of us will spend whatever we see we have in our bank accounts. I mean, I have to have a record player. I HAVE to. By automating this to where money is a) taken straight out of our paycheck or b) transferred to a savings account on payday, we essentially “trick” ourselves into thinking we make less than we do, meaning we will spend less than we make. Adios, record player that I would never use. Adios.
LadyBoss Move: First, if you aren’t already participating in your employer’s sponsored retirement plan – a 401(k) for most – contact your HR department, sign up, and start allocating a percentage of your income based on what you think you can afford (but up to the employer match is best!).
Once you’ve got that squared away and are comfortable with the amount being taken out each month, set up an online savings account separate from your bank account (I use American Express) and have either a portion of your paycheck automatically deposited here each month by your employer or set up an automatic transfer (to occur on the same day as payday). These two things alone will have you and your net worth doing mid-air high fives.
Step 3: Show Me the Money, Honey
Now that you’ve got your spending under control and have automated your savings, it’s time to focus on the other side of the equation: income. You can only trim your expenses so much before you hit your limit, and the only other way to increase your net worth is to find ways to make more money. And ladies, you know what that means - it’s time to ask for a raise or start a side hustle.
Getting a raise isn’t as easy as starting a side hustle as it depends on outside factors (i.e. your bosses); however, if you feel you have gone above and beyond the duties of your current role, it may be time to ask for one. If not, making money outside your 9 to 5 is your best bet.
LadyBoss Move: If asking for a raise, make sure you have done your homework and come to the meeting with your boss with strong support behind your request. Just because you’ve “been somewhere for a year” doesn’t constitute a raise.
The options for earning income on the side are endless – you just need to find something you enjoy and that fits your schedule. You can bartend on the weekends, refurbish and resell old furniture, start an Etsy shop for freelance design work – just something to diversify your income streams. Hey, even $200 more a month can have a significant impact. Want more ideas? Check out The Top 68 Side Hustles : Add Some More Money to Your Life.
Step 4: Avoid the Wealth Quicksand
Do you know what a depreciable asset is? (Wow, that’s a boring accounting term. My apologies.) It’s something you own that loses value over time, and the king of them all is your vehicle. There is nothing more idiotic you could do than buy an expensive, brand new car when you still have a ton of debt to pay off and nothing to your name. It’s going to drain your bank account, and in 6 years, you won’t have much to show for it. This also applies to clothes, electronics, household goods…these things are not going to make you richer, so you don’t want to spend 20% of your income funding them.
If you’re killing it meeting your financial goals, then feel free to go crazy on these things. If you’re not, keep them in check. Or put them on your Christmas list and hope Santa hears your pleas.
LadyBoss Move: If you’re looking to drastically build some real wealth, the first place to look here would be your vehicle. If you’re driving one you can’t afford, look into trading it in for something less expensive. It may be painful at first, but hey, I’m still driving a 2006 Pontiac G6. You’ll survive.
For everything else, be mindful of how much you are spending on these depreciable assets. Work your budget so that you aren’t spending more than 10% of your net pay on these items.
Step 5: Sell Your Crap
Have you heard of the minimalist movement? If not, it’s basically where people get rid of a majority of their stuff in order to lead a less-cluttered life. Now, I’m not saying you need to go that far (because I sure as heck don’t), but a lot of times we do hold onto things that we a) don’t necessarily need or b) don’t hold value for us any longer. And why keep them if they could be used to start an emergency fund or invest in a Roth IRA?
LadyBoss Move: Go through your home or apartment and determine what you don’t need. Then get your butt on eBay/Craigslist/Amazon and sell the crap out of it. Any cash you make needs to go straight to paying off debt or increasing your savings/investments.
Step 6: Do Nothing…And Make Money
This step is the hardest to achieve (which is why it’s last) but can seriously net you some major cash. Passive income is basically money you earn while you aren’t actively working for it. For instance, I rent out a room in my home which allows me to earn hundreds per month for basically little to no extra work. I already have the room – I’m just utilizing it to make some extra cash. How flipping awesome is that?
Setting up a passive income stream is one of the best ways to increase wealth because it can make you money while you’re at your full-time job or sleeping or eating dinner with friends. This is the bread and butter to making major gains in your net worth, and trust me, you want to dip your toes in it some way.
LadyBoss Move: Research passive income ideas (you can start here and here) and find something that interests you. It could be investing in rental properties, teaching online courses on sites like Udemy, renting out a room on Airbnb, or investing in the stock market. Again, once you start earning money from these ventures, use it to tackle that debt or increase your investments. You’ll be surprised at how fast your net worth will climb.
That’s it, folks. I want to stress again that you should move through these steps one at a time. Do not pass go, do not collect $200 until you’ve achieved the prior step and are comfortable with the changes you’ve made. Rome wasn’t built in a day, so don’t try to overhaul your finances in one either. It’ll just leave you frustrated and discouraged and send you flying back to being “average.”
Now go back to step 1 and get to it. Good luck!
What have you done to increase your net worth? What kind of results have you had?