One of the most important financial figures that you should know and always monitor is your net worth. Because a higher net worth means you are getting closer to achieving financial freedom which is one of the greatest heights one can go in matters finance. Everybody wants to achieve financial freedom. Your net worth is the value of all the cash and assets you have less all your liabilities.
So you took your pen, paper and calculator and did your math and found out your net worth is negative. Well, there is need for you to be concerned but do not panic yet because so many people have their net worth below zero. Now that you know you are not alone, what should you do to get out of this financial red zone?
1. Set financial goals
One of the main reasons why your net worth is a negative value is because you lack financial goals. So the first thing you need to do to jump out of this zone and fast is to sit down and set financial goals. What do you hope to achieve financially? After how long do you hope to achieve this? Ask yourself such questions. Our goals differ depending on who we are and what our current situations are. Some may set goals like owning a house, owning a car while some may say getting rid of debts is their goal.
REMEMBER ; Your goals must ALWAYS be SMART
- S – Specific
- M – Measurable
- A – Achievable
- R – Relevant
- T – Timely
2. Look for ways to increase your income
We often find ourselves with negative net worths because we tend to spend more than we earn. This means that our income may not be enough to take care of our financial needs and hence we go for alternative sources to support our income like loans which will get us into more debts and hence reduce our net worth further. So I think you know what I’m trying to get at. Look for alternative ways to increase your income. This way, you will not rely on debts to support your income because you will already be having a place from which you get extra cash. This will increase your net worth and fast.
3. Reduce your spending
A higher spending is a lower net worth, a lower spending is a higher net worth. Your net worth is negative because you are spending more than you are actually getting. So you need adjustments to your budget so that you actually spend within your wallet’s capacity. Reduce your spending; you can consider cutting on cost or even foregoing other items so that you can increase your net worth.
4. Pay off debts starting with those with high interests rates
Two factors directly influence your net worth. One of them is your income the other one is your debts. Actually you will only realise a negative net worth if if your debts are higher than your income. So you need to eliminate your debts or better still reduce them to a value that will not be more than your income. In doing this, you need to first consider paying off those debts with higher interest rates because these are your worst enemies in realising a higher net worth and in turn your financial freedom.
You have heard of this may be a million times. Left, right center you are being told to; INVEST! INVEST! INVEST!. And maybe you are getting bored of the same old advice being repeated to you over and over again. But come to think of it, there is a reason why you are hearing of this thing more than once. It is because it is IMPORTANT. So I am going to tell you again to INVEST; that is if you still want to get out of your negative net worth value and achieve financial freedom.