Your net worth is the difference between what you own and what you owe. It is also known as the difference between all of your assets and all of your debts.
Here is a simple example:
Home is worth $350,000, but you still owe $150,000 on your mortgage.
Investments = 100,000 &nb
Auto = 45,000 Auto loans = 30,000
Savings = 15,000 Bank loan = 4,000
You Own = $510,000 You Owe = $204,000
Your "net" worth, then, would be $306,000.
You can add to your net worth in two ways. You can either buy more things or pay down your debts. This article will first talk about getting rid of your debt because that is the quickest way to make more money and then buy more things.
In our example, you owe a total of $204,000. If you're like most people, you probably don't pay too much attention to your mortgage and car loan balances because you think they're just part of life.
The credit card companies are probably charging between 12 and 18 percent (don't pay attention to those teaser rates that only last a few months) and the bank loan is probably around 6 percent.
Now, let me ask you a question before we go any further. Which one is quicker? Create $204,000, which means to own more, or pay off $204,000 in debt? In both cases, your net worth will have gone up by the same amount, so the result is the same.
To make $204,000 in 15 years, you would have to invest $6,956.69 every year for 15 years and get an 8 percent guaranteed return. Where can you find such a high guaranteed rate of return in the market today? No place!
To pay off $204,000 in debt in 13.5 years, it only takes $100 more per month. Now, let's make sure you know what I just told you.
To add $204,000 to your net worth, you need to invest nearly $7,000 each year for 15 years. You hope and pray that you'll get an average of at least 8% every year.
Or, you can come up with just $100 a month to pay off all of your debt, including your mortgage, in 13.5 years — guaranteed! It's hard to believe, right?
Just check it out for yourself. First, use a table of compound interest to figure out how much you need to invest. Then print this out.
A debt reduction chart can be found at http://personal-finance-on-the-net.com/support-files/debtchart.pdf.
. You will need a programme called Adobe Reader, which is probably already on your computer. If not, you can get a free version by going to adobe.com.
In every situation, getting rid of your debts is faster and more reliable than getting more money. Why? Because the interest you pay on your debt is too high compared to the interest you are guaranteed to earn.
By using the debt chart and putting an extra $100 on top of the minimum payment each month, you can make your payments go a long way and speed up the time it takes to pay off all your debt.
Finding $100 extra every month is a lot easier than finding $6,956.69 every year for the next 15 years.
