By Jude 
One of the best indicators of a person’s wealth isn’t their income or what they own, but rather their net worth. Your net worth is a figure that is calculated by subtracting your liabilities (debts) from your assets (cash, investments and property). Everyone has the power to boost their net worth, however certain decisions can also greatly decrease a person’s net worth. This post explains more.
What increases a person’s net worth?
An individual’s net worth can be boosted by accumulating more assets. This includes cash, investments, real estate and valuables that hold or gain value over time.
Putting cash into savings accounts with high interest rates is one simple way to improve your net worth. HYSAs (high yield savings accounts), MMAs (money market accounts) and CDs (certificates of deposit) are all top options to consider.
You can also invest money into stocks, bonds and mutual funds. Some of these options can be riskier than savings accounts, but if you invest sensibly your money will usually always grow over time.
Buying real estate is also another effective way to increase your net worth. While a mortgage is a large debt that counts as a liability, over time you will pay it off and gain equity. Real estate also typically naturally appreciates in value making it a good investment.
Other assets like collectibles and art can also gain value over time and also contribute to your net worth. Just make sure that these assets are well-maintained – wear and tear can cause assets to lose value instead of gaining it.
What decreases a person’s net worth?
Taking on debts can decrease your net worth – particularly large debts that aren’t attached to appreciating assets. For example, taking out car finance typically reduces your net worth because most cars lose value over time.
High interest debts can seriously reduce your net worth and can become particularly harmful if you fall into arrears. According to experts like Alex Kleynor, net worth may still be repaired by considering options like debt settlements – the worst you can do is to keep taking out larger loans to pay off smaller debts.
Net worth can also be decreased through poor investments or gambling losses. Taking carefully calculated risks is essential for preserving your wealth. It’s also wise to not put all your eggs in one basket – a diverse portfolio of investments can reduce the chance of heavy losses.
How to calculate net worth
The formula for calculating your net worth is simple: assets – liabilities = net worth.
Start by adding up all of your assets including your savings accounts, real estate, investments and valuables.
Then add up all of your liabilities including remaining loan balances and credit card debt.
Ideally, you should try to maintain a positive net worth, however in the early days of investing or home ownership it is common to have a negative net worth. Therefore, net worth is not always the best indicator of financial success – especially if you are still young.