As the world gradually recovers from the COVID-19 pandemic, you may have realised the importance of prioritising your financial health and maximising your net worth. As 2022 approaches, you may be thinking of ways you can improve your net worth.
UNDERSTANDING NET WORTH
Net worth are split into two categories: Liquid net worth: Consists of your cash holdings and assets that can be readily converted into cash, like investments. Non-liquid net worth: All the properties you own, such as rental properties, real estate, vehicles, and more. These assets are not readily convertible into cash unlike your liquid assets.
Your total net worth will be the sum of your liquid and non-liquid assets, deducting any debts you have. A simple way to remember it is:
Assets – Liability = Net Worth.
GET RID OF DEBT TIMELY
One way to improve your net worth is to get rid of debt as soon as possible. Some individuals may make the mistake of focusing too much on bringing in income to the detriment of paying off debt. Interest-bearing loans are a liability and the sooner you can get rid of them, the better. You may be surprised to learn that the average personal loan and overdraft balances for borrowers from 21 to 29 years old increased by about 82% higher, as compared to the average in the first quarter of 2020 (Source: The Straits Time). If you have numerous debts to handle, pay off the ones with the highest interest rates first. Always remember to check if there are any penalties for late or even early payment.
BUILD UP AN EMERGENCY FUND
An effective way to ensure that you will not turn to loans when push comes to shove is to build up an emergency fund. The recommended amount that should go into this fund is six months’ worth of living expenses (Source: Investopedia). This includes monthly mortgage repayments, the cost of groceries, transportation, and other necessities. It is especially important to build up an emergency fund if you have debt because it will help to prevent more loans and credit card debts.
MAKE SMART PURCHASES
Making smart purchases can make all the difference to your net worth. Determine if a potential purchase is a need or a want. Create a list of your monthly financial obligations (e.g., savings, bills). Once you can meet these needs, you can spend money on the things you like. Remember to compare prices to ensure that you are getting the best deals when shopping.
INVEST IN YOURSELF
How much do you really spend on yourself? And by this, we don’t mean material goods – do you invest in yourself? The best investment you can make is in your own education. When you improve your skill set, you are paving your way to better-paying jobs and improved career prospects. Over time, the returns to your net worth will prove to be much more than the amount invested. Investing in your health is also one way of protecting your net worth from preventable health issues. According to the Chief Health Scientist of Singapore, more than a third of common chronic medical conditions in the country are preventable if people take charge of their health (Source: The Straits Time).
PUT MONEY ASIDE FOR YOUR FUTURE
Oftentimes, we can get so absorbed in paying for everyday things and setting money aside for our loved ones’ needs that we forget to reserve some money for ourselves. Saving for yourself can be one efective way of increasing your net worth in 2022. Every month, set aside some money for your future, such as putting it into a savings account or an investment portfolio. Over time, the accumulative earnings and/or compound interest can increase your net worth significantly.
BUILD A SIDE INCOME
From investments to little side hustles, these are great ways to earn extra income. You can save for big purchases (e.g., a well-deserve vacation), pay off existing debt, and avoid living paycheck to paycheck. A non- exhaustive list of side income ideas includes investing in dividend stocks, flipping retail products, selling handmade crafts, and much more.