The idea of personal net worth may seem like something reserved for the wealthy, but no matter your financial circumstances, it’s important to understand what net worth is about, and why it’s important to increase yours.
It’s not as complicated as it sounds. You don’t need to dive head-first into the stock market or launch a wildly successful business. All it involves is a series of smart steps anyone can take. Here’s what you need to know, courtesy of First Bank.
What Is Net Worth?
Most people equate high income with high net worth, but they’re not always related. Consider business tycoons who make $1 million a year. If they also spend $1 million a year, they have zero net worth. A computer programmer, nurse or plumber making $60,000 a year who consistently saves 20% of each paycheck will have a higher net worth than the high-rolling business executive.
Do the Math
To calculate your net worth, add up the value of your major assets, including the cash in your checking and savings accounts, stocks, bonds, retirement accounts, annuities, real estate holdings, vehicles and any valuable collectibles or home furnishings. Then, subtract all your liabilities, which can include your mortgage, outstanding loans, credit card debt and other money owed. The result is your personal net worth.
Why It Matters
Growing your net worth is an important part of preparing yourself for what’s to come. Major life changes and challenges—like buying a home, raising a family, paying medical bills and preparing for retirement—are often accompanied by large investments. Building net worth now will make it easier to manage changing circumstances and provide a cushion when you need it. It’s also good to have a little extra in the bank in the event of an economic downturn or market fluctuations.
Build a Foundation
Experts say you should put 20% of your income into savings—and a large portion of that should go toward retirement. Take advantage of your employer’s 401(k) or 403(b) plan and make sure you’re contributing enough to get the maximum employer match. Also consider opening an Individual Retirement Account, which will provide potential tax breaks now and money for your golden years. First Bank can help you choose between a Roth IRA, Traditional IRA, or Rollover IRA to find the best option for you.
Grow Your Savings
First Bank can help you make the most of your hard earned money. Start with a checking account to cover routine expenses and consider opening interest-bearing accounts to grow your savings. Savings accounts, money market accounts and certificates of deposit offer steady returns with little to no risk. Visit a First Bank branch near you and learn more about maximizing your savings.
About the Markets
Should you invest in the stock market? There’s no right answer. Adjusted for inflation, the market has averaged about 7-8% annual growth over the past 10 years—although keep in mind this is just an average and some years are more profitable than others. Some investments, including mutual funds and bonds, are less risky. First Bank’s wealth management team can help you find the right investment options for your preferences and lifestyle.
Manage Your Debt
Remember the formula for computing net worth? You subtract what you owe from what you have saved. It’s important to keep a close eye on your debt to monitor your net worth over time. If you’re in the market for a mortgage or car loan, shop around to find the lowest rate. Choose a low-interest credit card that offers rewards and make regular payments to keep the balance low. If you have other, higher-interest debt, consider applying for a First Banks personal loan, home equity loan or debt-consolidation loan to help pay it off.
Spend Wisely
The less you spend, the more you save. Look for opportunities to minimize your spending—it might be easier than you think. Dine out less often and make coffee at home. Resist buying that new gadget, at least until it goes on sale. You can use services like Groupon and the Honey app to find product discounts, and consider canceling premium cable subscriptions in favor of less-expensive streaming services. Review your life, home and disability insurance policies to be sure you’re not paying more than you should. First Bank offers low-cost, comprehensive insurance policies to provide security for you and your family.
Track Your Progress
It’s a good idea to invest in household budgeting software so you can see exactly where your money is going, then continue to calculate your net worth at regular intervals. This will help you stay on track as you work toward your financial goals.
The experts at First Bank can help you develop and maintain a budget and savings plan. Contact us or visit one of our Missouri, Kansas or California branches to get started.