How do the rich become richer? Their assets grow faster than inflation. We must all learn to harness the power of asset growth to ensure we pass along a great life to our children.
A couple of days ago, I wrote an article about increasing my income by 10% annually. Today, I will concentrate on growing my net worth by 10% annually. What’s the difference?
Net worth vs. passive income. Net worth is the sum of your assets minus liabilities. For example, if you own a home worth $500,000 but owe $300,000, this asset would add $200,000 to your net worth.
Dividend Investing for Everyone!
Passive income is the revenue your assets generate. Sometimes, assets, like eBooks you created, are difficult to value—although they generate income.
You want to track your passive income and net worth every month. Although tracking your net worth doesn’t help you pay bills (it’s not income), it will help you make vital financial decisions.
I was broke in June 2019, but I decided to start tracking my net worth. I wanted to record my journey of getting out of debt and building wealth.
My net worth in June 2019 was -$77,000. Today, November 2024, it is $800,000. As soon as I started tracking my numbers, things improved dramatically.
Paying down debt. So, how do you grow your net worth? The first thing to do is pay down debt and then acquire assets.
Paying down debt is no fun, but documenting your journey makes it so much easier. I remember paying on a credit card, which would still increase in value the next month. That sucked.
However, once I started documenting my debt journey on a spreadsheet, I felt much more calm about the situation. I could see clearly.
My wife and I used the debt snowball technique to pay off our debts. The debt snowball consists of paying off the smallest debts first and rolling the new cash flow into the next debt.
When you get on a roll, things will move super fast. The credit card companies don’t want you to focus on your debt; they want you to pay the bare minimum.
Once you can control yourself by not using credit cards, you can consolidate your debts. We consolidated our debts with several personal loans and paid these off quickly.
However, when you consolidate debt, it will free up the balance on your credit card. If you are not careful, you can rack up more credit card debt, which would be terrible.
Eventually, the debt will disappear, and you will be a different person. Why the change? I can promise you that you will never want to get into debt again.
Building your net worth via real estate. Most people’s net worth grows because of their primary residence. Real estate is a major component of people’s asset calculations.
However, we cannot rest on our laurels. Purchasing one home and thinking we are rich isn’t the answer. To grow our net worth 10% annually, we need to take bigger risks (to achieve greater rewards).
Should you purchase multiple properties? Yes. If you are serious about growing your net worth, you will need more than one property.
As you pay off credit card debt, you will free up cash flow that you can save and invest. If you stick with it, you’ll save a nice nest egg you can use to purchase another home.
The Magic of Floating Rate Preferred Shares
The cool part of tracking your net worth is that you can make business decisions from a “numbers” perspective.
For example, let’s say you have $300,000 in equity in your primary residence. You can withdraw $100,000 to put a down payment on another property.
You are simply moving your $100,000 from one column to another. You can remove a lot of the emotion and fear of purchasing a second residence.
I own three homes and a tiny house, so I understand the fear factor. However, it’s something you must get over in order to grow.
Growing net worth via a business. Businesses also can contribute to your net worth. You must be savvy to become an entrepreneur but do not rule it out.
I love that you don’t have to start a massive business to find success. Sometimes a small business is excellent just because of the personal creativity and tax write-offs.
Whatever you do, learn the entrepreneurial ropes by reading books by entrepreneurs. You can achieve market-beating returns by keeping overhead low, working hard for yourself, and maintaining good profit margins.
Growing net worth via the stock market. The stock market will play a major role in your net worth; however, you must prepare for some bad days.
Although the stock market will increase for the majority of years, there will be some tough times. When things go awry, you must be able to settle down and keep investing.
Becoming an automatic investor who puts a set amount of money into the stock market is a good idea. We call this dollar-cost averaging.
If you can stay invested, your portfolio will jump at some point. It’s a good idea to stay up to date with the stock market via Seeking Alpha (although it costs $240/year now).
The magic of net worth. So why is growing and documenting your net worth so important? Because your net worth is a reflection of your status.
It’s fair to say that people treat you differently when you have a net worth of -$8,000, +$8,000, or +$800,000. Wouldn’t you say?
More importantly, you will learn so much on your path to becoming a millionaire. Obtaining a million dollars isn’t the goal of becoming a millionaire.
The person you must become to obtain a million dollars is the actual goal. I am not the same person I was in June 2019 when I had a net worth of -$77,000.
The 40-40-40 Plan vs. Happy Cash Flow Retirement
You must learn new things to grow your net worth by 10% annually. You may need to invest in more real estate, get a roommate, invest in dividend stocks, trade options, or start a business.
All of these things require knowledge and, more bluntly, action on your part. You cannot simply sit around and wait for your wealth to grow.
If my net worth is $800,000, I need to grow it by $80,000 in one year. That’s a tough challenge. Perhaps the housing and stock markets could help me, but I still need to take massive action.
Conclusion. No one will help me grow my net worth; it is incumbent on me only. I must position myself and my assets to grow along with the markets.
The Options Wheel vs. Dividends
However, there are things I can do to accelerate my wealth creation. Currently, I am going to college because the VA is paying me $1,800 per month tax-free to attend. I invest this money directly into dividend-paying stocks.
I also teach Marines online for $35 per hour. I invest this money into dividend-paying stocks. I am not simply resting and waiting for home prices to rise.
I am taking massive action to ensure I get as much money into the markets as possible. Eventually, I will purchase another home, probably in Arizona.
The moral of the story is that I look at my numbers and try to make them bigger. To do this, I must become more intelligent and work harder. That’s how I plan to keep growing my net worth at 10% annually. Good Luck!
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