So you want to increase your net worth? Well, let us take a look at your personal net worth statement.

In your net worth statement, you have listed your assets (everything you own) and your liabilities (everything you owe). The difference is what you are really worth. In other words, your net worth is how much you really have after you have paid off all that you owe.

There are two ways to increase your net worth:

1. Increase Assets: Look at the assets table below

Increasing your assets means buying a car, house, boat or increasing the money in your checking account, etc. However, it is sometimes impossible to increase assets without incurring a liability – at least for a little while. It will be difficult to purchase a car without a loan or a house without a mortgage. Also, increasing the amount of money in your bank account is not easy. If it were, we wouldn’t be worried about our personal finances.

2. Decrease Liabilities: You can increase your net worth by decreasing your liabilities.

You can decrease your liabilities by paying off your debt. Sometimes, it may be necessary to sell off a few assets to pay off the liabilities. This is because the interest rate on your debt grows at a faster pace than the interest on savings.

Think about it. Your credit card might have an APY of 22% while the highest earning savings account or investment you have might be 5% at the most. If you have $100 in a savings account that earns 5%, in a year you will have $105. If you have a $100 on a credit card and do not have additional charges on that card, in one year (interest is 22%) you will owe $122. Your savings is not even enough to pay off the debt.

So, you want to do whatver you can to decrease what you owe, as quickly as possible.

In the third and final post of this series, we will discuss how to utilize the cash flow statement to increase your net worth.

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