Have you ever seen articles or heard stories about celebrities and entrepreneurs where there is a mention of how much that person is worth? The figure they are talking about is that person’s net worth. It is the value of all financial and non-financial assets owned by a person minus their liabilities.
If you aspire to having a high net worth, there are several ways you can do it. This article will review how you can build your net worth and reach your financial goals
What is Net Worth?
Your net worth is the total of your assets minus any liabilities.
To find your net worth, you will want to add all the assets you have including the money you have in the bank, all the real estate you own, the total worth of your cars and so on.
Then add your liabilities. This will include any credit card debt, any money owed on a car or a house and money owed on loans.
Take the total of your liabilities and subtract them from your assets and you will arrive at your net worth.
Note, this process can be made easier by using a net worth calculator which can be found online.
Factors that Affect Net Worth
There are several factors that can make your net worth more or less attractive. For instance, if you live in a city where expenses and salaries are relatively low, your net worth will be a lot more impressive than it would be in a city that is more expensive.
Age in another factor to consider. If your net worth is $1 million when you are 55 years old, that is quite an accomplishment. However, your financial situation will be even more enviable if you reach that goal by the age of 35.
How Do You Add Up?
If you are interested in finding out how you add up, here’s a look at suggested net worths by age. How do you compare?
- Less than 35: Median $11,100, Average: $76,200
- 35-44: Median: $59,800 Average: $288,700
- 45-54: Median: $124,200 Average: 727,500
- 55-64: Median: $187,300 Average: $1,167,400
- 65-74: Median: $224,100 Average: $1,066,000
- 75+: Median: $264,800 Average: $1,067,000
How to Grow Net Worth
Now that you have a better understanding of net worth, let’s look at some ways to boost your number.
Pay off Debts
Your liability will eat in to your assets negatively affecting your net worth. You can prevent this from happening by eliminating debt.
To keep debt low, pay off any money owed as soon as possible. This will minimize an accrual of interest. Apply extra money when you can.
You can also lower debt by consolidating. The idea here is move all your debt into a low interest loan or credit card. This will help you better manage your money while keeping expenses under control.
Max Out Retirement Contributions
Many employers offer retirement plans where companies will match any contributions you invest. These plans also offer attractive tax benefits.
It is advisable to take advantage of these plans if you have the opportunity. Retirement contributions defer your tax payments to your lowest earning years and increase available generative assets. They will help you avoid high tax bills that can make a considerable dent in your net worth.
Cutting expenses is one of the most obvious ways to build net worth, but it may also be the hardest for some people to accomplish.
A good way to start eliminating expenses is to make a budget. This will give you some perspective on what you are spending your money on and what can be eliminated.
Eating out every day, spending money on gadgets you may not need, buying coffee in coffee shops and taking vacations are all expenses you may want to cut back on.
You don’t necessarily have to take these out of your budget completely, but it’s advisable to assess what you can and can’t afford so you can focus on growing wealth.
Invest Your Money Wisely
Your checking account should have enough money in it to cover your day to day and monthly expenses. Beyond that, any money sitting there is not working for you the way it should be.
Instead of leaving your money in an account where it is not gaining interest, put it somewhere it will make you money.
Real estate is also a great investment that almost always generates a profit. Consider buying property if you have the capital to spend.
Buy a Car That Lasts Forever
Many of us dream of driving a fancy car, but cars may not be the best way to build wealth.
Cars decrease in value the moment you drive them off the lot, no matter how high end they may be. You also need to think about car payments, insurance, maintenance fees, gas and more.
Instead of driving a luxury vehicle, or buying a bunch of fancy cars, aim to get just one car that you plan to drive to the ground. This will keep your net worth in good shape.
Also, if possible, buy your car outright. Any balance you owe on your car will increase your liabilities making for a deduction in net worth.
Talk to a Financial Advisor
Financial advisors are not only for rich people. Anyone can consult a financial advisor for advice on the best way to manage their money, how to get the biggest tax breaks, how to handle debt and more.
Celebrities Who Built and Lost Net Worth and How They Did It
When you hear about celebrities with high net worths, you may not be surprised. After all, these are people with jobs that can potentially pay millions of dollars a day.
In addition to the high salaries they get, many of them make wise investments that help them build their wealth. On the other hand, there are some celebrities who crash and burn due to overspending.
Let’s take a look at a few celebrities who have built and lost net worth.
You may think that all the Rock’s money came from him starring in big budget movies. In fact, Forbes named him as the highest paid actor. However, he also spent his money wisely.
Jessica Alba is another actor whose impressive net worth did not come entirely from her acting career. She was smart to invest her money in the Honest Company, a brand known for selling everything from baby products to beauty products. She owns a major share of the company which is estimated to be worth $1 billion.
Her net worth is around $200 million.
J-Lo is known as one of the hardest working celebrities out there. Over the years, she has racked up money touring, selling albums, acting and through endorsement deals. Lopez also invested wisely and has a $2 billion clothing and perfume business that adds to her portfolio.
She has a net worth of $400 million.
Mike Tyson’s story is not as inspiring as Alba’s or the Rock’s.
Even though the boxer was once making $30 million dollars a fight, he also had expensive tastes. Most of his money went towards buying jewelry, mansions, limousines, cell phones, parties, clothing and even Siberian tigers.
Run-ins with the law, an expensive divorce and lawsuits drove him further into debt. In fact, at one point, he was $27 million in debt.
Fortunately, he has since sobered up and found some money-making opportunities. His current net worth is estimated at $3 million.
Willie Nelson’s story is pretty amusing.
When the country singer found himself owing $16 million in back taxes, he worked out a deal with the IRS. He made an album called “The IRS Tapes: Who Will Buy My Memories” and designated all proceeds of the album towards paying off his tax bills.
Fortunately, the album kept him out of jail and out of debt. His current net worth is estimated at $25 million.
Michael Vick once had a successful career as the first African American football player to make the NBA draft. However, he lost a considerable amount of his income due to lavish spending habits and poor business decisions.
His involvement in dog fighting also sullied his reputation reducing his earning potential considerably. A contract dispute with his manager ended up putting him in bankruptcy.
Apparently, he was able to hold on to some of his savings as his net worth currently stands at $16 million.
Net worth is what is ultimately looked at when determining wealth. The right financial moves can help you to grow your wealth while bad decisions will make it decrease. When it comes to measuring wealth, how do you add up?