Often, the decisions made in the earlier part of that period carry more weight in the long run. This is unfortunate because, for many, this is when financial intelligence is at its lowest so the quality of the financial decision-making suffers. Any financial decision that results in a reduction in your net worth (net worth = “real” assets less debts) is a bad decision. With that in mind, I offer 4 suggestions worthy of consideration for those wanting to increase their net worth.
- Investigate which asset class to invest in. The two main asset classes for investors are property and shares but there are others which may work better for you. There are also a myriad of sub-classes to be considered. All assets classes have advantages and disadvantages so you need to understand (or seek advice on) the best investment mix for you at this particular stage of your financial journey.
- Make superannuation contributions. For most of us, employer contributions will not be sufficient to ensure a comfortable retirement and for the self-employed, cash flow may limit contribution levels. Extra contributions while you are starting out will compound in value to be significant by retirement. It is possible to overdo superannuation contributions (tax and cash flow limitations) so again, seeking advice on the best approach for you is wise.
- Keep control of credit cards. Allowing credit card debt to get out of control will always reduce your net worth. It is unlikely that your credit card has been used to acquire “real” assets but you have increased your debt. In addition, the effect on your future cash flow will also be negative as you divert funds to reduce the debt and pay the extreme interest rates applying to credit card debt.
- Plan your financial journey. The old saying that “what gets measured gets managed” applies here. Measure where you are right now, plan what you are going to do with your financial resources over time and you will be able to calculate your expected net worth. Periodically comparing your expected net worth with your actual net worth will guide your progress and help you make necessary adjustments.
If you are just starting out on your financial journey, get some quality financial advice to make sure you have sufficient net worth at retirement. For those whose financial journey is struggling to make progress, it may not be too late for assistance but, if you’ve given up hope, please show younger generations that “she’ll be right mate” is not a sound strategy.