On the last business day of 2023, I went through all my accounts and calculated my personal net worth. I started tracking my net worth in September 2019 and was lucky that my frugal saver tendencies meant I had a respectable net worth for a then-28-year-old. If you have not been tracking your net worth in the past, know that just having a positive net worth is a great place to start!
I found that tracking my net worth proved to be a huge inspiration to grow it, even if tracked sporadically. When you are negative, tracking how close you are to zero can inspire you to keep knocking out debt rapidly. Once you get positive, growing your net worth gets even more fun because compound interest starts working in your favor.
What does it look like to have compound interest working for you? Since I started tracking my net worth in September 2019, my net worth has increased by an average of $77,670 a year. That is more than half of my current gross salary even though my savings rate is just over half of my net salary (after paying around 30% in taxes and maxing out my 401(k) contributions). Even more remarkably, that $77,670 is more than my entire gross salary when I started tracking my net worth in September 2019.
In other words, I have never actually saved $77,670 in a year. Not even in 2023, my highest paid year. Never. But my efforts to grow my net worth allowed me to cash in on additional opportunities to grow my net worth even more. You can also cash in on these opportunities to grow your net worth more quickly than you expected.
1. Increase your savings rate.
This is the most basic step: If you are spending every dollar you earn, you cannot grow your net worth. You have to create space between your income and the money you spend to exist in order to grow your net worth. This can be a small amount at first. Save $25 a month and consider that a success! Folks will also make goals to save $1 or $10 a day to get in the habit of gradually saving a bit more.
Once you establish a habit, you want to put that money to work for you so it can gain a bit of interest. Interest rates are currently high enough that even small amounts of money will experience some noticeable growth over time. Putting money in a high-yield savings account rather than your basic checking account will make you extra money each month. Once you solidly build the habit of saving a little, you can advance to contributing money to accounts where it can grow more quickly.
2. Start investing.
After you increase your savings rate and prove to yourself that you can live on less than your entire income, it is time to invest. That $77,670 of annual growth only exists because I pour money into investments. Investing is essential to grow your net worth at any pace beyond a glacial rate. However, we recognize that the idea of investing is scary when you are getting started and have not invested in the past.
If you want to set up an investment plan to fit your specific goals, you should consult a professional to get you started. However, there are some standard formulas for DIY investment plans that revolve primarily around investing in total stock market index funds and/or target retirement date funds. We wrote about these strategies last year to help those who are not quite ready to pay someone for a personal finance consultation. Most of my investments are in total stock market index funds or target date retirement funds, and I can confirm that both have grown over the past 4.5 years.
3. Contribute enough to get your employer match.
If you have an employer who provides the benefit of a 401(k) match, or a match for a similar retirement account like a 403(b) or 457 plan, contributing enough to get the full match gets you free money towards your net worth. It is free money that is not considered part of your taxable income when contributed, and it is not factored into your salary. If you do not contribute at least enough to maximize your employer match, you are quite literally turning away free money.
My employer offers a generous match that results in more than $10,000 in free money a year for me. Yes, an extra $10k. Even if your employer offers a lower match and/or you have a lower salary, this is free money! If your annual salary is $50,000 and your employer offers only a 3% match, that is still an extra $1,500 to grow your net worth.
To get the most out of this bonus money, also make sure you have your 401(k) or other retirement account set up to automatically invest any contributions. When your employer contributions are invested right away, they experience growth and eventually compound interest!
4. Increase your income at your job.
Maybe this goes without saying, but if you have tried to create enough space in your budget to save and invest more but have plateaued, the solution is increasing your income. From a holding-a-job perspective, this means one of two things: You can either negotiate a higher salary or find a higher paying job.
I know both of these methods sound easier than they are in practice. But they both are possible. (If you follow the links in the previous paragraphs, you can read about how I have successfully accomplished both!) Both take preparation. If you want to find a new job with higher pay, you need to perfect your resume for the job you are seeking, prepare to leave a positive impression in the interview, and negotiate to make sure you get that higher salary.
Seeking a raise with your current employer can often be even more difficult. You need to prepare over time, setting goals that are achievable and exceeding them, to show that you are quantifiably an indispensable employee that your employer should promote to reach full potential. The more evidence you have and the more willing you are to walk away from your job, the more likely you are to secure the raise you want.
Once you secure a higher salary, whether at your current employer or with a new job, remember to invest the additional money to achieve as much net worth growth as possible!
5. Start a side hustle.
If you have maximized your earning potential at work or simply do not want to put more energy into your regular job, a side hustle may be the right path for you to increase your net worth. Whether you are starting or growing a side hustle, this extra stream of income can fund your net worth growth goals.
When you have multiple streams of income, a strategy to maximize net worth growth is living off of one stream of income and investing the rest. Some of the most aggressive investors tend to keep adding streams of income while maintaining their lifestyle at a level that can be afforded by just one stream of income.
Side hustles can also be flexible: If you want to earn more but only have the time to commit to doing so on a seasonal or intermittent basis, different side hustles can be a great solution. They can be as large or small as you make them, and they can grow your net worth accordingly.
6. Reduce your needs cost.
As a last resort, if you truly cannot find the room to save and invest, do not have an employer match, do not see the potential for career growth, and cannot fit a side hustle into your lifestyle at the moment, it may be time to reduce your needs costs. When we budget, we have a tendency to look at cutting the small joys. You can fathom taking out that weekly coffee run that gives you joy. Ultimately, that saves less than $10 a week and just makes you sad. Instead, look at your big expenses.
In particular, housing and transportation usually compose a large portion of our budget. They are often considered fixed expenses—we need housing and transportation!—but fixed does not mean unquestionable. Consider how you can reduce your overall cost for housing and transportation, whether by house hacking, downsizing, running to work, or some other creative solution.
These are big changes, but they will also lead to significantly more room in your budget. This room is the potential for growing your net worth. If you take some of these steps, your net worth may grow by more each year than your current annual salary. It is a lot more fun to watch your money grow than to work for money.
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