Net worth is not just about the size of your bank balance, it has everything to do with how much you earn, what you save, and the return on your investments and how all that measures up against liabilities like loans. Much as everybody’s aim is to gradually increase their net worth over a period of time, many people seem to be on a suicidal spree that puts them squarely on the path of diminishing net worth.
- Spending more than you earn
The simple formula for keeping net worth consistently on an upward curve is to stay ahead of one’s expenses. It is expected that you will borrow and incur liabilities on funding your home or financing a college education, but it would be criminal to waste credit card limits on routine expenses that suck you into debts that diminish net worth. The home and academic qualifications are value additions to life that make us wealthier by asset accretion and by bestowing higher qualifications that earn us better jobs and higher income.
- Collecting bad debts through unbridled expenditure
As we have already stated good debt is acceptable, but accumulating bad debts by using credit cards to fund frivolous expenses is detrimental to wealth creation. Similarly, taking an auto loan when you can least afford car maintenance is not prudence. The wiser strategy is to save consistently to make more than the minimum down payment and reduce the loan to the bare minimum.
- Postponing /avoiding or delaying retirement planning
There is a method to the “madness” about saving money for retirement. As you divert more money away from your income for retirement funding you are effectively denying yourself money that fuels unnecessary wants and desires. Consider it as an act of sacrifice which is realistically an investment you make in yourself for enabling your future needs. It is people who do not have a well-considered retirement plan who spend excessively on feeding wealth diminishing behavioral patterns.
- Avoiding health insurance and evading stock protection measures can open you up to greater risks
Believing in the full flush of youth that you can avoid paying health care insurance, denying yourself insurance protection or car and property insurance protection is the easiest way or exposing yourself to greater risks. This way sudden accidents and medical emergencies as well as natural disasters will open the floodgates of untenable expenses that will erode your net worth in double quick time. Another disastrous strategy is to invest all you have in high risk stocks for gathering maximum gains in the short term. A major reason for filing bankruptcies is the inability of Americans to survive a financial crisis because of lack of emergency funds or insurance protection and poor investment planning.
- Inability to capitalize on one’s earnings at an early age
No matter how brilliant an achiever you may be you can’t expect to make solid big ticket investments till you enter the forties, but the individual who meticulously plans his savings and funds his retirement starting in his twenties usually emerges as the true champion and wealth creator. It is also pertinent to note that frequent dislocation in jobs and careers can diminish wealth. For stabilizing and building wealth you need to plan your career and build on what you have by making the best use of your experience, talent, job skills and academic qualifications.
Start low profile when you aim for high profile wealth gains
A simple strategy would be to leverage a loan for vehicle title to create an emergency fund. A cash loan for title uses the collateral of your car pink slip (title) for raising around 60% of the car’s commercial price. The auto collateral loan may seem to charge a higher rate of interest at 25% ASR but this is actually a competitive rate compared to high interest credit cards and personal loans that lure you into irredeemable debt. The car equity loan delivers the cash within minute of your applying, and makes repayment a pain less process. The mini investment that you made in creating an emergency fund will grow in faster multiples when it is invested wisely in the stock market.