How to Increase Your Net Worth

Do you know your net worth and how to make the most of it?

Your net worth is essentially a dollar amount that shows the total value of your assets, minus your debts. Assets are things such as retirement savings accounts, your home, and valuable possessions like a vehicle or jewelry. Debts include things like mortgages and credit card balances. When you know your net worth, you have a great way to gauge your overall financial health.

The average net worth varies greatly based on your age. For example, the average net worth for a person who is 70 – 74 years old is $225,390, while the average net worth for someone under 35 is only $6,900. What a huge difference the years can make!

As you can see, your net worth typically increases with age. But you can also do some things right now to improve your net worth. Check out these 10 ways.

By Thomas Minter

1. DEVELOP A NET WORTH MENTALITY

If you want to improve your net worth, then a mentality shift may be in order. You may need to reexamine your everyday financial choices depending on where you are today, and that isn’t always easy.

For example, you may need to embrace frugality, forgo little luxuries, or put off a purchase or vacation because you would have to use credit to make it happen. Your net worth can only grow if you increase your assets and reduce your liabilities, and that may require sacrifice. Without a net worth mentality, making these hard choices might be impossible, so you need to adopt a mindset that prioritizes building your net worth if you are going to succeed.

2. TRACK YOUR NET WORTH

You can’t monitor your net worth if you don’t know what it is today. While you can certainly do the math yourself, this isn’t always convenient, especially if you have a lot of accounts. Luckily, there is a better way.

Tracking your net worth with Personal Capital is an easy way to get started. You gain access to a wealth of helpful tools that can make taking control of your financial life simpler than ever before.

3. MONITOR YOUR CREDIT

Both your credit score and report are critical components of your financial life. They determine your eligibility for a range of financial products as well as the interest rate you’ll end up paying.

When you monitor your credit, you empower yourself to make smarter decisions about money and debt. If you want to monitor your credit for free, then Credit Sesame is a great option. Not only can you see your score every month, but you also get personalized recommendations designed to improve your financial situation.

4. ADD INCOME STREAMS

When you add new streams, you not only diversify your income but also create opportunities to build new skills and potentially reach greater levels of professional success.

Choosing a side hustle that offers you flexibility and income-generating potential, like starting a blog through Bluehost, can be the key to bring in extra money and even providing yourself with more financial security. Whether you decide to save, invest, or use the cash to pay down debt depends on your goals, but every dollar can make a difference when you want to improve your net worth.

5. BUILD AN EMERGENCY FUND

An emergency fund provides you with a financial buffer against the unexpected. Whether it’s a surprise medical bill, car trouble, or an appliance failure, you don’t have to resort to adding new debt to handle the situation.

If you build your emergency fund with Radius Bank’s Hybrid Checking, you make sure your money is always working for you thanks to the generous interest rate. That way, your emergency fund grows over time instead of just sitting there stagnant.

6. PAY DOWN HIGH-INTEREST DEBT

Since debt is a financial liability, it harms your net worth. By focusing on paying down your high-interest obligations first, you not only improve your net worth but potentially save yourself a ton in interest. Plus, the less money you have going out to pay down debt, the more you can save and invest, giving you another chance to secure your financial future.

7. OPTIMIZE YOUR 401(K)

A healthy retirement plan is at the core of your overall financial well-being. By optimizing your 401(k) with Blooom, you receive personalized reallocations that improve the performance of your account. And, when your retirement count is working to the max, it grows faster, allowing your net worth to rise right along with it.

8. START INVESTING

Investing can be a great way to bolster your net worth. Your money can usually grow faster than it would in traditional savings accounts, but its also more accessible than if you stash it away for retirement.

Today, there is a slew of easy-to-use apps to help you get started. Options like Acorns and Stash make micro-investing (investing by socking away small amounts – like spare change – frequently) a breeze, while Betterment, a leading robo-advisor app, allows you to take a “set it and forget it” approach to reaching your investment goals.

9. GO AFTER A RAISE

If you haven’t received a raise or promotion recently, then it may be time to ask for one. As long as your request is reasonable and aligns with salary norms in your field and location, there is little harm in asking.

Before you broach the topic, do a little research and come armed with evidence that showcases your value as an employee as well as what the average pay rate is for similar professionals in your city. This gives you the best chance of making a solid point, increasing the odds your employer will say yes.

Since your income plays a big role in your net worth, pursuing a raise when one is deserved is a smart move. After all, many companies aren’t going to increase your pay without a catalyst, so consider being the spark that leads to better things.

10. BUY PROPERTY INSURANCE

A natural disaster can wreak havoc on your financial life if you aren’t protected, so make sure you have the right amounts and kinds of insurance coverage for your home, personal property, and vehicles. While you send money out the door in premiums, it beats having to potentially pay for thousands of dollars in major repairs or replacements out of pocket, as well as legal bills in cases involving liability.

NET WORTH CONCLUSION

Ultimately, knowing how you stack up compared to the average net worth and striving to improve your each and every day, you position yourself to have the best financial future possible. Start using some or all of the tips above today, and see if your personal net worth doesn’t start heading in the right direction.

So, do you know your net worth? Or, in what ways have you worked to increase your net worth? Let us know in the comments!

Read the full article here.

8 Reasons To Never Borrow From Your 401(k)

Don’t use your retirement savings account as a piggy bank.

Did you know you can actually take out a loan from your 401(k) retirement plan if you want to? According to recent data, about 20% of those participating in a 401(k) plan borrow money against that savings account. You might be tempted to do the same in order to pay for a large or unplanned expense, but there are many reasons why you should avoid doing so at all costs.

Below are the eight major reasons why borrowing from your 401(k) is a bad move for your long-term financial future.

By Lisa Smith

Reason #1: You Are Not Saving

If you borrow money from your 401(k) plan, most plans have a provision that prohibits you from making additional contributions until the loan balance is repaid. Even if your plan doesn’t have this provision, it is unlikely that you can afford to make future contributions in addition to servicing the loan payment.

Because the whole point of having a 401(k) plan is to use it is as a way to save for the future, you are defeating the purpose of having this account if you use it before you retire.

Reason #2: You Are Losing Money

If you not are not making contributions, not only is the entire balance that you borrowed missing out on any potential growth in the stock or bond markets, but each future contribution that you are unable to make (since you have an outstanding loan) isn’t growing either.

The extraordinarily low interest rate that you are paying to yourself with your loan payment is likely to be a pittance in terms of return on investment when compared to the market appreciation that you are missing.

“It is common to assume that a 401(k) loan is effectively cost-free since the interest is paid back into the participant’s own 401(k) account. However, there is an ‘opportunity’ cost, equal to the lost growth on the borrowed funds. If a 401(k) account has a total return of 8% for a year in which funds have been borrowed, the cost on that loan is effectively 8%. This is an expensive loan,” says James B. Twining, CFP®, CEO and founder of Financial Plan, Inc., in Bellingham, Wash.

Of course, there’s also the fact that you are paying yourself back with after-tax money. If you are in the 25% tax bracket, earning $1 only gives you $0.75 toward repaying the loan, and that $0.75 will be taxed again when you retire and withdraw it from your plan. While the interest rate on the loan may be low, you are getting taken to the cleaners by its tax implications.

Reason #3: Time Will Work Against You

Long-term investing (such as saving for retirement) is based on the idea that by putting time to work on your behalf, your money will grow. Most calculations suggest that your money will double, on average, every eight years.

401(k) plans permit each loan to be held for up to five years or longer. Therefore, if the loan is used to fund a first-time home purchase, loan holders not only lose out on what should have been an opportunity to nearly double their money, but they are also left unable to make up for the lost contribution and growth opportunities.

Over time, their balance is unlikely to ever reach the total that it would have reached had contributions continued uninterrupted. (For more insight, check out Delay in Retirement Savings Costs More in the Long Run, Understanding the Time Value of Money and Is it easier to save for retirement if you start early in life?.)

Reason #4: If Your Financial Situation Deteriorates, You Could Lose Even More Money

Should you find yourself in a position where you are unable to repay the loan, it is treated as a withdrawal and the outstanding loan balance will be subject to current income taxes in addition to a 10% early withdrawal penalty if you are under age 59½. (For more on this, read Tough Times … Should You Dip into Your Qualified Plan?.)

However, there are several exceptions to the early withdrawal penalty, such as the post-55 exception. (For more on this, check out the IRS page on this topic.)

Reason #5: You Are Trapped

If you have an outstanding loan, most plans require that the loan be immediately repaid if you quit your job. “If you cannot repay the loan 60 days after losing your job, it will become fully taxable and may be subject to a 10% early withdrawal penalty,” says Carlos Dias Jr., wealth manager, Excel Tax & Wealth Group, Lake Mary, Fla.

That means as long as you have a loan you are stuck in your current job and may be forced to pass up a better opportunity should one come along. Or, you can take the loan balance as a withdrawal and pay the 10% penalty, which further compounds the growth opportunities that you have missed by taking the loan.

Reason #6: You Lose Your Cushion

Taking a loan from your 401(k) plan should only be done in the most dire circumstances after you have completely exhausted all other potential sources of funding. If you take money from your plan to fund a vacation or pay off higher interest loans, the money won’t be there to borrow if and when you really need it.

Reason #7: It Suggests That You Are Living Beyond Your Means

The need to borrow from your savings is a red flag – a warning that you are living beyond your means. When you can’t find a way to fund your lifestyle other than by taking money from your future, it’s time for a serious re-evaluation of your spending habits.

What purchase could possibly be so important that you are willing to put your future in jeopardy and go into debt in order to get it? (For more insight, see Digging Out of Personal Debt and The Beauty of Budgeting.)

Reason #8: It Violates The Golden Rule of Personal Finance

“Pay yourself first” is the golden rule of personal finance. Violating that rule is never a good idea.

The Bottom Line
If the idea of taking a loan from your 401(k) plan crosses your mind, stop and think before you act. Instead of short-changing your future to finance your lifestyle today, consider re-evaluating your current lifestyle instead.

Scaling back on your expenses will not only reduce the burden on your wallet, it will also increase the odds that a sound retirement nest egg will be waiting for you in the future. “I have never met anyone who told me that they wished they had saved less,” says Chris Chen, CFP®, wealth strategist, Insight Wealth Strategists LLC, Waltham, Mass. “People think that they will make up a withdrawal later, but it pretty much never happens.”

Read the full article here.

5 Surprising Rules for Preserving Your Wealth

Make sure you’re maximizing your efforts so you can make the most of your retirement.

Baby boomers are beginning to retire, and so now it is time for them to start changing the way they look at investing. Investing plays a key role in the preservation of wealth. The right investment strategies can set you up for a worry-free retirement, while the wrong ones could have you scrambling when you’d much rather be relaxing.

A recent survey identified five essential rules for baby boomer investors.

By Elena Holodny

1. Stay invested for the long term.
The vast majority of retired baby boomers surveyed — 92% — think Americans need to save more for retirement by getting and staying invested in the market. Four out of five believe Americans should go for a consistent investment strategy with long-term objectives, and only 32% said they would change their strategies based on the fluctuating markets.

On a related note, billionaire investor Warren Buffett also champions the stay-in-it-for-the-long-term strategy. At the height of the financial crisis, in October 2008, he wrote in a New York Times op-ed article:

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

2. Keep an eye on fees.
94% of retired boomers said they want to be able to “easily” understand what fees they’re paying. And 78% said low-cost, simple investments are better for the long-term.

3. Diversify your portfolio.
85% of those surveyed said that a diversified portfolio is one of the most important things for “a safe path to a better retirement.”

In other words, regular Americans just trying to save up for retirement probably shouldn’t risk putting all of their money in things like bitcoin.

4. Protect yourself against market downturns.
80% said it’s important to protect “your nest egg” and lower your risk of losses when markets swing downwards. And 30% said they wished they knew earlier about what to do when markets start getting shaky.

5. Start saving early and often.
79% said they think putting a portion of one’s monthly income toward retirement is one of the best things you can do. Moreover, 60% of respondents said they wished they had started investing as young as possible.

Although some younger investors might think diving into investing right away is intimidating or boring, those who start investing earlier could end up with significantly greater returns.

As Business Insider’s Andy Kiersz reported last year, the team at J.P. Morgan Asset Management showed a powerful illustration showing outcomes for hypothetical investors who invested $10,000 a year at a 6.5% annual rate of return over different periods of their lives.

The differences are remarkable: Chloe, who invested over her entire career from age 25 to 65, ends up retiring with nearly $1.9 million. Lyla, who started just 10 years later, has only about half of that, at $919,892.

And, somewhat astonishingly, Quincy, who invested only from ages 25 to 35, ends up with $950,588, slightly more money than Lyla, who invested for 30 years. That shows how important early compounding is to investing.

Read the full article here.