As a young professional who is trying to become financially stable and build wealth, there are a few things you can do to increase our net worth even sooner.
1. Contribute to employer sponsored retirement accounts. Allocating a certain percentage of your income (like 5-10%) to your work 401K or 403b allows you invest money each month. Investing in this consistent way will help you increase your net worth over time. Contributing to your work retirement plan may also help you get even more money to invest with especially if your employer offers a retirement match (in which they put extra free money into your investment accounts on top of what you already put in there). Since the contributions you make are pre-tax, investing money in your work retirement plan decreases your taxable income which can lower your taxes each year and decrease your student loan payments.
2. Open a Roth IRA. Contributing to a Roth IRA also allows you to invest money for retirement. Some of the perks of a Roth IRA are that you have more options in what you want to invest in, whether that’s stocks and bonds, real estate, or other alternative investments. You can also choose to invest at any time since contributing money to a Roth IRA does not have to be associated with the paycheck you get from your job. One of the best things about a Roth IRA is that your money grows tax free (so you never have to pay taxes on the profits you make). Plus, you can take the money you contributed out of the account at any time, if you needed it for an emergency.
3. Pay down your debt. Your net worth is the income you make and assets you own minus any debt you owe or liabilities you have. By lowering your debt, or paying it off completely, you automatically increase your net worth. If you happen to have high-interest debt, like a credit card or car loan, considering paying it off as soon as possible. Doing so will increase your net worth and leave more money in your pocket each month.
4. Reduce your largest expenses. Another way to increase your net worth is to decrease some of your monthly expenses. While some people focus on saving a few bucks each week on coffee, you can instead get a bigger boost in your net worth by lowering your largest expenses, like housing. Whether you rent an apartment or pay a mortgage on a home, there’s a good chance a large chunk of your income is spent on housing. One of the best ways to lower your monthly expenses and increase the amount of money you invest each month is to decrease your housing costs. Consider getting a roommate, renting out a section of your home, putting your place on AirBnB, or relocating to a cheaper area. Saving money on housing costs can have a drastic impact on how much money you have available to invest each month.
5. Set up automatic savings and withdrawals. Another way to build your net worth faster is to set up automatic payments for any credit cards, student loans, or car payments you owe. Doing so will ensure that you make these payments on time and will even give you the option of paying more than the minimum each month (automatically) which can help you pay off any debt you have sooner. You should also consider automatic savings. Having automatic withdraws of money from your checking account to your savings account can help ensure you are saving a certain amount each month which will help you stack more money overtime.