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How to Increase Your Net Worth

April 18, 2011

net worth

First things first – before you can start to increase your net worth, you’ll need to work out exactly what it is. In a nutshell, this means getting a largish sheet of paper and writing out a list of everything you own and putting an approximate but realistic value on each item.

Include your home, your investments, money in bank or savings accounts and the value of your pension plan. Total it up and take away the value of any liabilities, such as your mortgage and other loans, any credit card debt you have, along with hire purchase agreements and overdrafts.

What you’re left with is your net worth. In some cases this may be a negative figure, but don’t despair. You need to work on increasing this figure to improve your net worth. Making some wise investments using cash ISAs is a good idea and there are other things you can also look at doing.

On the surface, increasing your net worth means doing one or both of two things; you need to own more things and/or reduce your debt. It makes sense to reduce debt first, as the interest rates charged, especially on credit cards, will always far outrank any interest you’ll be paid on savings.

To increase your income, you’ll need to either get a higher paying job, or an additional part time job. Another way is to make some savings or investments.

Saving means putting money somewhere completely safe, where you’ll be guaranteed a stated amount of interest. Savings interest is, of course, subject to income tax, just like any other income, except in the case of ISAs, or Individual Savings Accounts.

You can invest up to a total of £5,340 annually in an ISA and you won’t need to pay anything to the Inland Revenue.

Investing, on the other hand, carries greater risks than saving, but the potential rewards are higher. You can, for example, invest in stocks and shares, but as everyone knows, prices go down as well as up. There are ISAs which invest your money in the stock market and which give you the benefit of not having to pay tax on your earnings. This type of ISA is subject to a maximum yearly investment of £10,680.

If you have a lump sum which you can afford to leave invested for a fixed length of time, you might want to consider a fixed rate bond. You get a guaranteed amount of interest over the agree time period, which could be from as little as one year, to as much as five years.

In general, the longer you’re prepared to leave your money untouched, the better the rate of interest you’ll receive. The main benefits are that you know exactly where you stand with regard to what you’ll receive and in some cases you can opt to receive your interest as a monthly payment to increase your income.

However, there’s usually a fairly high minimum investment and usually you won’t be allowed to withdraw any of your money before the end of the term, or at the least you’ll incur interest loss penalties.

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