How rich are you? One way to measure your wealth and overall financial situation is to calculate your net worth – the difference between your liabilities and assets.
According to the latest data from the Federal Reserve, the median net worth of U.S. households in 2022 is $192,700. That's the equivalent of $211,229 today.
If half of your population has a net worth less than that, that doesn’t necessarily mean you are in a bad financial position. However, if your net worth is negative, that can be a red flag.
That's why it's important to increase net worth and if it's currently negative.
Read more: This map highlights the average net value for each state
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Your net worth is a number that compares the value of your assets (which is any money or property that belongs to you) with the money you owe, including debts and overdue bills. Another way to think about net worth is that this is the debt you have.
Of course it is possible to have negative net worth, because the amount you owe can indeed exceed the value you have. However, whether this is a bad thing depends on the situation. While it is normal to have negative net worth at some stages of life, it can also be a sign of poor currency management or other financial trouble.
Plus, when you have more than you owe, you will have a positive net worth. This means you have the money available to save on emergencies, contribute to retirement or invest in other assets.
In very limited cases, having a negative net worth is not a red flag. In fact, if your debt represents your future investment, it can be part of a solid financial plan.
For example, when you are paying off your mortgage early, your debt may exceed your total assets. However, your property can gain enormous value over time. As the value of your home grows and the mortgage is paid off, your net worth will grow.
Another example is taking on student loan debt. When you’re in school or even in an early career, your net worth can be negative. But ideally, your education will enable you to improve your income capacity and net worth in the future.
According to the Federal Reserve, the average net worth of college graduates is 382% higher than those who graduated from high school alone.
Read more: What is the average net worth by age?
If your net worth is negative deep, it may take some serious effort to turn things around. As you work hard to improve your situation, remember that you may not transfer to a positive net worth overnight, but any progress is important.
Here are some ways you can increase your net worth when negatively impacting.
High Interest Debt - Any debt with an APR 7% or higher is the secret to negative net worth. Why? The interest you incurred may increase your assets at a faster rate than any return on investment.
If your credit card or other APR 8% or more debt account, here are a few ways to consider for faster returns:
merge: Use debt consolidation loan or 0% APR balance to transfer credit card to pay off high interest accounts. When you do this, you can save on interest expenses and possibly pay off your debt faster.
Additional payment: Payment exceeds the minimum amount due each month. If you don't, your balance may be faster than you can repay. To reduce your overall interest expense, try the debt avalanche method, which requires additional fees to accounts with the highest interest rate.
Credit consultation: Get professional help from an NFCC certified credit consultant. These counselors can meet you for free to help you improve your debt income strategy or incorporate you into your Debt Management Plan (DMP).
Create more breathing space in your budget by cutting costs and/or increasing revenue. When you do this, you will free up additional cash to pay off your debts and increase your net worth.
If you are ready to make major changes to your budget and speed up the process, consider some of the following changes:
Relocate to reduce your cost of living.
Apply for a new job or side show.
Rent a spare room.
Reduce the size to a smaller car or an old car.
Cancel all automatic payments in nature.
Pick up overtime at work.
To find more fees you can cut, check out your latest credit card statements and bank statements. Check out what non-local ones are going to cost and then take steps to cut them out. For example, you may need to start a weekly meal plan to avoid excessive spending on takeaways, or you may need to cancel some subscriptions that aren't used frequently enough to guarantee fees.
Where do you put your cash matters? When you make sure your funds are deposited or invested in the right place, it will grow faster and can even bring you tax benefits.
Emergency savings: Buy a bank account around that pays competitive interest rates, such as a high yield savings account (HYSA). Converting from a regular savings account to HYSA may mean you earn 4% or more on your deposit.
Sinking funds: To reduce funds or the money you save for irregular but planned money, consider investing in a CD or Treasury bill. When you agree to deposit cash into a fixed time frame, both options pay you a fixed interest rate even if it’s just a few weeks.
Retirement savings: Check if your employer offers a contest about retirement donations. If you do this, you will get free money in your retirement account every time you contribute. Adding money to your employer sponsored account may also reduce your taxable income.