3 Ways I Increase my net worth each month

Our net worth is an important financial number. It’s the value of our assets (things that increase in value) subtracted from our liabilities (expenses and debts we owe). The higher our net worth, the more financial security we have. Increasing our financial security gives us more freedom to do the things we love and live the life we desire. It means we can retire from our jobs early or work fewer hours if we want. We can spend each day doing what we love and can easily sell our assets to generate more revenue and money if needed. Because I want this level of freedom in my life, increasing my net worth is a continuous goal. Here are the 3 ways I’m doing that:

1. Investing money in my retirement account. As a physician who is employed by a large academic institution, I have the option to invest in employer-sponsored retirement accounts. Since I work for a non-profit hospital, I have access to a 403b which is quite similar to a 401K. Through this type of retirement account, I can invest money for the future which increases my net worth. Each month I put 10% of my income into my work 403b and invest the money in this account in index mutual funds, which are low cost funds that purchase a variety of stocks and bonds. Money in these index funds earn an average return of 8% per year. This means that each year I invest money, I earn about an 8% profit on my investment and that interest compounds each year as I continue to contribute money in the account. With an average interest rate of 8% per year, my money increases in value annually and doubles every 9 years. Putting pre-tax money from my salary into retirement accounts that are invested in low cost index mutual funds is one of the best ways I increase my net worth each year. The fact that these investment contributions also save me money in taxes each year is a bonus.

2. Paying down debt, early. Most adults have some form of debt, whether it’s a credit card balance, car loan, or home mortgage. This debt is a liability that subtracts from our net worth. Although many of us are fiscally responsible and pay a portion of the debt down each month, one of the things that has increased my net worth even more over recent years is paying the debt down sooner than required. In other words, instead of making the minimum payment, I pay more than what is required each month. Simply paying the minimum will cause me to pay extra fees in the form of interest and takes away money I could be using to invest or spend on other things. Paying more than the minimum each month, and eventually paying off the debt early, decreases my liabilities. As I mentioned earlier, decreasing liabilities increases my net worth.

3. Saving money in a separate account. One of the major ways I increase my net worth is by saving money. Although it’s sounds simple, it’s easier said than done. I’ve learned that unless I’m intentional about saving money, I’ll inevitably buy extra clothes or shoes I don’t need and find myself wondering why my bank account balance is near zero at the end of the month. One way I avoid overspending, is by saving money in a separate banking account. I have a certain “savings goal” each month and to ensure that I achieve that goal, I have a certain percentage of my paycheck that is automatically deposited into a separate account on the first of each month. Since this account isn’t connected to my debit card or credit card, it’s almost impossible for me to spend. Since I can’t spend it, I save it, and as a result, the value of my savings increases each month. As my savings increases, my net worth increases.

Although each person is different and may have various other financial priorities, we can all increase our net worth through at least one of these ways. Tell me, which method have you chosen to focus on to increase your net worth?

One of the best decisions I’ve made: automatic savings

When I graduated from medical school, one of the best things I did was set up automatic savings. I made a budget that had about 25% taken away in taxes, decided to live on 50% of my income, and made the bold move to have the remaining 25% placed in an entirely separate account. This account was reserved for building wealth through saving, investing, and paying off debt. It was one of the best things I did and here’s why:

1. It allowed me to grow my emergency fund. One of the best things about having part of my paycheck go into an entirely different bank account was being able to save money in a separate place. Because the money in this account isn’t connected to my checking account, I couldn’t spend it. Month after month, the money just kept adding up and before I knew it, I had saved thousands of dollars in an emergency fund. I remember looking at the account 6 months after I started saving and being so proud of myself. It made me even more motivated to keep saving. Plus, it gave me a sense of relief to know that I money to cover unexpected expenses.

2. I started investing early for retirement and building my net worth. Another awesome thing about automatic savings was that I was able to start putting money into my retirement account. Unlike money sitting in my savings account, the money I had automatically deducted from my check for retirement was being invested in a way that would make me even more money in the future. Although retirement may be decades away, I need to start saving and investing now in order to have enough money in those accounts to cover all of my needs. I don’t want to be relying on social security checks from the government trying to make ends meet on a small sum of money when I’m in my 60s. I instead, plan to invest the money now in a way that would allow me to live the life I want free from financial burdens.

3. I paid off a lot of debt. Regardless of whether you hate debt or don’t mind it, paying it off can feel like a weight lifted off your shoulders. Although I entered a loan forgiveness program for my student loans, I still had other credit card debt I needed to pay back. Unlike most people who go straight into medical school from undergrad, I lived in Washington, D.C for two years before starting medical school. Although that time was rewarding, I racked up lots of credit card debt. (The city was super expensive, and I used credit cards to cover some of my bills since my salary was low) By the time I left the city, I had thousands of dollars of debt to repay. When I got my first job as a doctor, I had hundreds of dollars automatically withdrawn from my separate account each month to pay off this debt. By the end of my first year as a doctor, I was credit card debt free! Now, instead of spending hundreds of dollars on a credit card payment each month, I’m able to invest even more money towards retirement and raise my net worth.

4. I now have money for vacations, Christmas gifts, and other indulgences. Along with investing for retirement, building my emergency fund, and paying off debt, having a portion of my check automatically sent to a separate account also allowed me to save money for things that bring me joy. I now have some money in a “vacation fund” so I can take trips and create memories with friends without racking up debt. I have also been able to save money each month for Christmas gifts so that my spending in December doesn’t put me in a financial hole for the next year. Plus, I have money saved for expensive purchases like a new phone or laptop should I need it.

5. I learned how to live below my means. I think this is by far the most important lesson I learned. As a physician, my life is a little different from most. I spent many years in school living off of student loans, and now must spend a few more years in residency where I’m paid a low salary by the government. However, once I finish residency, my salary quadruples. It’s an interesting timeline. Since there’s so much hard work and delayed gratification involved to get to the end goal, it can be very tempting to “not worry about money” and simply get what I want because I know that eventually I’ll be able to afford it. Although this seems fine, many people with this thought process inflate their lifestyles by too much, rack up lots of debt, and are unable to retire when they’d want to because they didn’t save enough money earlier on in their lives. I don’t want that to be me. Learning to live below my means has taught me to be less materialistic, more giving, and more appreciative for the things I have. It has also helped me learn to be humble and not to compare myself to other people. In other words, living below my means helped make me more mature.

My point? As you can see, automatic savings in a separate account has had many benefits on my life. Although it can be difficult to live on half of my paycheck while others seem to be living a much more lavish lifestyle, I realize that the sacrifices I make now will pay off in the end. Practicing self-discipline by saving money, is one of the best decisions I’ve ever made.