steps to higher net worth | Savings and budgeting

If you’re someone who makes New Year’s resolutions, building higher net worth is probably on your list.

Establishing a plan to achieve that goal is a first step, but know that results won’t come quickly. As Scott Alan Turner, a certified financial planner in Dallas, puts it, “Wealth is built over time, not overnight.”

“When I teach people about building wealth, one of the best things they can do is be patient,” he says. “Compound interest works if you allow it. The time it takes $ 500 to double to $ 1,000 is exactly the same time it takes $ 50,000 to double to $ 100,000, or $ 500,000 to $ 1 million.

That said, to accumulate more wealth in 2022, try these suggestions for financial advisors serving high net worth clients.

  • Update your budget.
  • Boost your savings.
  • Pay off the debt.
  • Increase pension contributions.
  • Invest in yourself.
  • Reduce your tax bill.
  • Improve your career.
  • Audit your insurance.

Update your budget

If you already have a budget – and I hope you have it – analyze it and update it. After all, no budget can stay the same for long. You get a pet, add a streaming service or buy a car, and suddenly your budget changes.

Brian Stivers, investment advisor and founder of Stivers Financial Services in Knoxville, Tennessee, suggests that you start the year by weighing your monthly budget in increments of “major lifestyle expenses” and “non-essential expenses,” the latter of which which may include a gym membership. or restaurant shopping.

“Then make an informed decision about how much discretionary income you have available for your financial goals,” says Stivers. Once you have a number in mind that could be used for retirement or a savings account, start putting that money aside each month.

Boost your savings

If you don’t have one, you absolutely need a savings account. Your savings account, which could also be your emergency fund, needs to grow because if you borrow money from yourself you will be in less debt, which in turn increases your net worth. Without a savings account to put money aside and help organize your finances, it’s hard to imagine getting rich.

A savings account is at the heart of any strong financial portfolio. It allows you to manage your cash flow and pay for any unforeseen expenses, such as a major car repair, without having to take out a personal loan. If you come across an investment opportunity, a strong savings account may be the place for you to invest. As long as you pay your bills, there’s nothing wrong with fattening a savings account and increasing your net worth.

Pay off the debt

Mark Charnet, founder and CEO of American Prosperity Group, in Pompton Plains, New Jersey, says paying down debt is a critical first step in building wealth. Wealthy individuals tend not to pay a fortune in interest.

Your net worth is the sum of liabilities minus assets. So, as your debt decreases and your income and assets increase, your net worth increases.

“The first rule to increasing your net worth is eliminating debt and should accompany every financial plan,” Charnet said. He adds that you may not be able to erase all of your debt quickly, but when you pay off credit card debt, you will always want to pay more than the minimum required.

However, when it comes to your mortgage, Charnet says there is currently no need to shell out more than your payment. “Some financial advisers suggest that a person had better speed up their mortgage payments,” Charnet said. “However, with mortgage rates at all-time lows, this financial advisor says this is the last thing to do.”

Increase pension contributions

Next, increase the funding for your retirement plan. Many experts suggest spending 10-15% of your annual income for retirement. If you are far from that, try saving 1% or 2% more. Small additional contributions, if you make them with each paycheck, will add up over the years.

In case you’re wondering whether you should pay off all of your debt and then set up a retirement plan, many financial advisers suggest doing both at the same time – assuming it will take years to pay off everything you do. must.

“Take a balanced approach to investing the money found in your budget and reducing your debt,” advises Stivers. “If you have $ 500 a month for financial planning and you have credit card debt, take half for debt and half for savings and investments. “

Invest in yourself

While it’s always a good idea to invest in your future by putting money for retirement or your children’s future, investing in yourself now could increase your net worth.

For example, if you go to college, in theory you could get a better job. Of course, it depends on the type of degree you get. In 2021, the National Association of Colleges and Employers analyzed which master’s degrees tend to generate the highest incomes. A master’s degree in biology will earn graduates about 87% more than without it. A master’s degree in accounting will, on average, result in a salary increase of 4%. You will also want to weigh your potential earnings against graduate student debt.

If you hire a career or financial coach, you might get information that will lead you to a promotion. Investing in yourself won’t always help you get rich, but if you think there are some obstacles preventing you from living your best life, solving these issues can free you up to increase your income and build up wealth.

Reduce your tax bill

Everyone should be paying their fair share, of course, but taking advantage of tax breaks will help your net worth rise.

Tax credits, such as the Child Care and Dependent Care Tax Credit and the Lifetime Learning Credit, directly offset your taxes owed. Meanwhile, a tax deduction reduces your taxable income.

If you can lower your tax rate, you could potentially save thousands of dollars. Consider your tax bracket. For example, if you are single and earn $ 86,376 per year, your tax rate is 24%. By following the advice of a financial advisor and reducing your taxable income by just one dollar, such as making qualified charitable contributions, your tax rate would rise to the next bracket – 22%.

Again, no one is suggesting that you aren’t paying your fair share of taxes, but whether you can increase your net worth by lowering your tax bill in a way the government allows you, like taking advantage of tax deductions or of tax credits, why not?

Improve your career

According to the career website Zippia, for example, the average annual salary for any American employee is $ 47,520, while for a business owner that number jumps to $ 95,559. Of course, things may not turn out the way you want them to. A lot of businesses don’t succeed. But if yours does and you own a successful business, you might find that your net worth increases dramatically.

Audit your insurance

Insurance can be extremely expensive, as self-employed people with health insurance – or parents who insure teenage drivers – can tell you.

Maybe you have great insurance. But if you often get growls every time you pay for your monthly health insurance, life insurance Where car insurance premiums, or wondering if you’re getting a good deal on your home or tenant insurance, do yourself a favor and compare.

For example, last year, the Centers for Medicare & Medicaid Services released data showing that returning consumers could save, on average, 40% of their monthly premiums thanks to improved tax credits that have been enacted in the ‘American Rescue Plan Act of 2021. If you can lower your insurance premiums without drastically reducing coverage, you could put savings into your retirement or other investments to increase your net worth.

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