To finalise this week’s series on Net Worth, we are going to look into it from another angle, meaning, once you have a positive net worth you don’t go back right? Well, actually wrong, but let’s see why.
So, now that we established what Net worth is and how we calculate it, it’s time to look at how we can keep it in the positive.
We already established that Assets – Debts = Net Worth, we also saw that if we owe more than we own we have a Negative Net Worth, so your goal is to keep it positive. This can happen more often than you think! Imagine you buy a brand new car, the minute you drive it off the lot it has already lost 20% of its value… so imagine you buy a brand new car for $20.000, the minute you drive off into the sunset with a grin on your face it’s worth $16.000… (I’m thinking we’ll be having a whole week on cars really soon!!). Back to the Net Worth, you just lost a lot of money which is actually contributing to your Net Worth, it’s bringing it down! Don’t do that.
So, how can we buy whilst increasing our Net Worth? Great question! Let’s see:
- When you buy a house and get a mortgage, be sure to put at least a 20% down payment, this will, almost always (there are exceptions), insure that your house is worth more than you owe on it, houses usually go up in value (except those rare exceptions that we can talk about another time!)
- When you buy a car, buy a “new-to-you” car, meaning, second hand, because it has already lost those 20% when it was driven off the lot brand new and second hand cars down go down in value as fast or as much.
- Don’t own more than 25% of your annual income of things with a motor, even when bought second hand they go down in value not up! (unless it’s a collection car and I’m guessing if you are like me and learning about Net Worth, you can’t afford one of those!)
- Save money. Living within your means might be a new concept for you but we’ve established that how much you earn is not really the problem, the problem is how much you spend! (so that second job is really not going to help if you spend all of that as well!, mindset my friend!)
- Have fun! Start playing around with your numbers and how much you are “worth” financially! It’s fun and it will probably inspire you to change a few things when it comes to your saving or spending!
I hope this was helpful! I know it inspired me to look at my numbers and maybe take my Net Worth (almost wrote self worth again!!!) more seriously… I hear some handbags actually go up in value… the thing is you can’t use them otherwise they lose their value which got me thinking… well, if nobody sees it… do I still want it?!… 🙁
S – The Sparkling Budgeteer
