What’s your real net worth and how to increase it
Last year, the net worth for the average Canadian dropped by 1.1 per cent to $678,792 due to a wobbly stock market, higher household debt levels and lower returns on pension plans.

Our net worth isn’t static, as there are factors beyond our control (such as real estate or stock market prices) that can bump it up or knock it down. Still, there are proven strategies we can use to increase our net worth over time. The sooner we begin, the longer time they have to work and the wealthier we can become.

Before you can improve your net worth, you have to know where you’re at financially. The simplest way to do this is tally your assets (what you own) and subtract your liabilities (what you owe). Whatever is left over is your net worth. (There are many net worth calculators available online.)

But don’t be confused that this number is the total measure of your worth. Your real net worth is actually much higher—and will grow steadily over time. Here’s how you can power it higher.

Invest in Yourself

Most people think of investing in terms of the stock market or real estate. Those are important pillars for building net worth over the long term, but they are not the only ones. The best wealth generator is not a stock or a condo—it’s you. Enhancing your ability to earn is the single best investment you could make.

When we’re young, we have a surplus of human capital because we have a long runway of working life, good health, and freshly minted skills that an employer is happy to pay for. We may not have a lot of financial capital yet; in fact, we may even have a negative “balance sheet” if we carry student debt. But over time, we’re going to convert our human capital into financial capital. Once we retire, we’ll likely have a surplus of financial capital, in the form of savings, real estate, and other assets.

Anything we can do to support our ability to earn money is likely to pay rich rewards. For example, investing in education and continuing to learn new skills enables us to find rewarding work; taking care of our health allows us to generate income; making time to network and keep up with social connections is a form of “social capital” that can help us land a great job or bounce back faster from a career or personal setback.

Multiplier Effects

Small financial tweaks can add up over time to increase our net worth. For example, since the bulk of our lifetime wealth comes from our employment, it’s worthwhile to be creative about how to “scrape” more financial value from the job. Start by asking for a raise. Keep track of your accomplishments and make a business case for why you deserve a pay bump. Ask for biannual performance reviews instead of annual ones. It might be easier for your employer—both from a psychological and a budgetary perspective—to give out two smaller increases twice yearly than a larger one once a year.

If extra cash is out of the question, get creative. Would your employer pay for your transportation or gym membership costs? What about an extra week of vacation or the opportunity to work from home periodically to have a better work/life balance?

Do you have any hobbies or additional skills you could monetize? Not only are hobbies good for our health, but some of them can also bring in extra cash. The larger your pool of savings, the faster the power of wealth compounding works.

And, on the subject of compounding, consider investing in stocks of companies which pay dividends to shareholders. (Please consult with your advisor if this is suitable for you.) A 20-year study showed that investing in stocks that pay high dividends, and reinvesting the payments, generated an annualized return of 11.7 per cent compared to the S&P/TSX Composite Index, which gained 8.9 per cent during the same period. This is a significant outperformance which allows your money to grow faster while you’re doing other things.

Expense Accounts

While we can’t control the stock markets or even how well our employer’s business performs, we can decide how much we spend on discretionary items. No one wants to live in a state of current deprivation, hoping for some future day of plenty; however, doing an audit of our expenses might reveal where costs could be trimmed. The obvious place to start looking are credit card bills. Are there charges on auto-renew, such as subscriptions, membership fees, etc. that could be cut?

What about your shopping habits? Simple strategies like making a grocery checklist and avoiding shopping when you’re hungry can make a big difference in your weekly food bill. What about clothing? Clean out your closets first. We often buy duplicates or triplicates of things because we forget what we have. On the flip side, if you own things you no longer like or need, consider selling them or donating them to a registered charity to obtain a tax deduction. All these small changes add up.

Lastly, find out how you can pay lower fees. Negotiate with your cable and cellular provider. Know your credit rating and, if you need to, improve it. A better rating will give you more bargaining power on mortgage rates and other loans.

Rita Silvan, CIM™, is personal finance and investment writer and editor. She is the former editor-in-chief of ELLE Canada magazine and is an award-winning journalist and tv media personality. Rita is the editor-in-chief of Golden Girl Finance, an online magazine focusing on women’s financial success. When not writing about all things financial, Rita explores Toronto’s parks with her standard poodle.

Rita Silvan is a paid spokesperson of Sonnet Insurance.

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