Enhance your Net Worth through Proper Planning
Written on Thursday, December 10, 2015
By Navneet Kumar Dubey
Everybody needs growth in life, it can be in terms of money and position etc., but to achieve growth you need to increase your worth which is eventually increased by the valuable asset you possess. Net worth is the difference between what you own & what you owe. It basically tells you where you are in life.
Following points suggest how you can grow your net worth with time-
1. Regular Investment: Every change of phase in life requires an investment it can be in multiple directions, but if you are a regular investor, you need not to worry about the market conditions as it avoids timing the market, which means you need not to think about the ups & down of the market. You get a smooth ride towards growing net worth as regular investment reduces the impact of short-term period volatility & the various market fluctuations. Moreover, as the market generally increases over the long-term, you will always be benefited with high growth in your net worth.
2. Goal Based Planning: Any financial goal planned for a longer period of time helps an individual to expedite their net worth. Goal like house purchase is simply an auto multiplier for your growing net worth, as the amount of investments you accumulate to buy a house that money is added to your net worth & as soon as you buy real estate property from that savings, the worth of that house or building gets added to your net worth & it increases automatically. Isn’t it a right way to invest?
3. Opt for a Portfolio Strategy: Individual can opt for different styles of analysis & get good returns that can beat the market. Some investors who are active in day to day market take advantage of inefficiencies & generate good returns in their overall portfolio. The other kind of passive investors, who think that markets are efficient, hold their investments for a longer period of time & get good returns, hence they too make money. The similarity in both the concept is that you will end up growing your net worth.
4. Manage Risk: It is a factor of getting potential reward. One must know, to grow your net worth potentially you need to provide a rational basis for better decision making in regards to any kind of risk you are likely to take in future. Risk should be taken according to the needs of the fund. Suppose, you need fund immediately, you need to keep them in liquid funds or cash. If needed for long-term keep them in equity. Allocation of funds helps you manage the risk. It is vital to utilize that strategy, which suits your risk profiling, which can be conservative, moderate or aggressive.
5. Limit your Liabilities: Any kind of borrowing or usage of credit card adds up in your debt zone, which affects your growing net worth, as liabilities are always subtracted from your assets. Suppose, for buying a home if you take a heavy loan you need to pay high interest on monthly basis (EMI’s) & by paying interest you can really dig yourself in deep. The best way is to avoid debt or pay them off as soon as possible.
6. Know Your Valuable Asset: Anything owned by you is termed as an asset, which can be physical asset like, real estate or financial asset like, cash. But all assets are not equal. Assets which generate income & appreciation potentially helps you build your net worth & they are termed as valuable assets, for example, investments in real estate, mutual funds, bonds, etc. Some of the assets may have negative impact on your net worth as they are more likely to abrade your net worth & depreciate the value of overall growing assets. For Example: Buying an electronic gadgets, cars, etc.
7. Reduce your Monthly Expenses: The best way to have control over spending is to make a monthly budget, which should be categorized on the basis of expenses. The fixed expense that stays same like, buying spices, milk for household activities while the other, variable expenses are those that add comfort to your lifestyle like, buying clothes for yourself whose price differ from place to place & season to season. Discretionary expenses are the one which are essentially not the part of your household expenses, but they are typically defined as the ‘wants’ rather than ‘needs’ for say, money spent on entertainment. Categorizing them into three parts will help you to identify the difference between whatever you “have to” spend or “want to” spend in a month. This will help you discipline your investments & saving which in turn will help you in growing your net worth.
Strategically planning for a financial goal through proper asset allocation as per your risk profiling will definitely help you in growing your net worth sooner or later; basically it depends on the aggressiveness of your investments towards that direction.