I’ve shared before that 2018 is going to be the year that I focus on my family’s net worth.
I’ll be honest, my net worth wasn’t a number I cared about but 2 years ago our net worth weighed very heavily on the liabilities side of things and we did not have a lot of liquid assets. This concerned me, which is why 2016 and 2017 were the years for us to turn the equation around by living below our means and building up our cash reserves and investments. But the hustle is never over and there is always additional tweeking and adjustments to be made to our financial planning.
If you’re wondering why you should care about your net worth now, this is another form of measuring your financial position. When you subtract your liabilities from your assets, it gives you the chance to review your financial strengths and weaknesses. I use this method to analyze our finances and to create new goals every single year. For instance, for 2017 our goal was to increase our liquid assets and 2018 is the year for us to aggressively reduce our liabilities, more specifically our student loans.
So, if you’re on the same journey as I am to increase your net worth in 2018 (whether it’s by reducing your liabilities, increasing your assets, or both) here are some easy quick tips I use and may help 🙂
Here is a free template of the Net worth spreadsheet I use.
Save at minimum 10% of your net income
As you get your paychecks, make sure to put away at minimum 10% of your net income. Our personal goal for 2018 is to live 21% below our means so we’ve budgeted accordingly, but 10% is a conservative percentage of your cash to help you reach your financial goals. If you can save 15% to 25% of your income that’s more power to you! You can check out a related post about creating your budget here.
So, what can you do with this cash?
Depending on your stage in life and your financial position or net worth, I’d encourage you to evaluate your emergency fund, your investment accounts (not including 401K or ROTH IRA) and your short / long term savings goals for a future purchase. Which areas need more funding and what are some goals you have in mind? The 10% minimum savings of your net income can be dispersed across multiple goals or dedicated to one sole purpose.
How to manage it?
To give you an example, I’ll share how I manage our cash. I have 1 checking account, which I call our “operating account”. Our paychecks get deposited to this account and from this account we pay all of our bills (credit cards, auto payments, rent, mortgage, etc.). At the end of every month, I transfer the cash we saved up to our 1 high yield savings account where I receive a 1.35% APY. This fund includes our emergency fund and our short / long term goal savings. As for our investments, I use the Stash app for our ETF investments.
Overall, create a system that works best for you to achieve your goals and keep it consistent. If you’re not sure whether your current accounts are the most competitive, shop around and make 2018 the year of financial change!
Increase your pre-tax contributions
One EASY way to live below your means is to increase your pre-tax contributions to your retirement account. If your employer offers a 401K and match benefits, take advantage of every single dollar of that match. 2018 401K contribution limits are $18,500 and it’s my personal goal to max it out.
If you can’t max out the contribution limits, try your very best to hit your employer’s matching benefits. Consequently, this will reduce your net income but the retirement contributions are increasing your net worth!
Include the debt monthly payments in your budget
If you’ve got a mortgage, car payments, credit cards, student loans, and / or personal loans, include the minimum monthly payments in your budget. Make sure these are the first items getting paid before you even consider other variable or discretionary costs.
Pay more than the minimum payment
If you are able and are aggressive about bringing down your liabilities (which will increase your net worth) create additional budget line items to allocate cash for extra payments towards your debt. For instance, my personal goal is to pay our 30 year mortgage in 15 years so we have an additional budget item in our fixed expenses for extra payments to our mortgage. By doing so, this will help you really tighten your belts and live with less than you actually earn. I know, it can get tough but there are no gains without any pain!
Use your tax return to pay down debt
Since tax season is around the corner, so are our tax refunds! Yay! 2018 we are going to take a different approach and use this cash to pay down our student loans. Here’s an extra couple thousand dollars that we do not account for in our yearly income so treat this as a bonus to yourself and pay down your debt. By doing this, you will save hundreds and potential thousands in future interest AND increase your net worth by reducing your liabilities.
The bottom line is to create a diverse strategy to increase your assets (liquid assets and investments) and to decrease your liabilities as quickly as possible. There is nothing wrong with having a negative net worth, what’s important is that you’ve got a game plan to grind and hustle for your financial well being and to become financial free / independent from the creditors.
Now, as an additional tip (not included in the 5 main ones) if you do not have a fully funded emergency fund, I highly suggest that you prioritize this as a financial goal for 2018. Dare I say, give it more priority than your extra debt payments and using your tax return to pay down debt. Here is why: nearly 50% of American households don’t have $500 in cash for an emergency. Without this emergency fund, you are 1 hiccup from a financial disaster and you do not want to be in a terrible position as you work so hard to build your quality of life, to build your family and to grow your career. Here’s more on emergency funds and savings.
If you have some tips I didn’t mention in this post feel free to reply and share your methods.