5 Ways to Increase Your Net Worth

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.

Find Your Purpose and Thrive

As young professionals with plans for success that include fulfilling careers, thriving relationships, and financial independence, it is critical that we are mindful of what we do and how we spend our time. In order to transform our lives from simply having a “job” to building a career that can become our life’s work, we need a clear vision of our own purpose. We have to determine our mission in life and laser focus on what we were meant to do.

• Figure out your purpose. One of the biggest dilemmas you may have as young professional is determining your life’s purpose. Perhaps you got a degree and found a job you are doing well in, but you still don’t feel fulfilled. One way to solve this problem is to spend some time figuring out your purpose. What things do you do well? What activities do you enjoy? What do other people say are some of your best qualities? What would you do if money were not an issue? Taking time to answer some of these questions will get you closer to determining your purpose. Keep in mind that your purpose may change when you are in different stages of your life.

• Turn down opportunities that distract you from your purpose. Once you determine your purpose, pinpoint something you want to pursue as a career, or find a hobby you want to make into a business, laser focus on that. It can be tempting to take jobs and agree to things if they pay well or offer other perks, but resist the urge to make your decisions based on money or salary alone. Yes, you need to make sure you can pay your bills, but once that basic need is met, it’s critical that you focus on your purpose and turn down opportunities that take your focus from that, even if they are lucrative. If you truly want to build your business or operate in your purpose then you need to put in the necessary time and energy to perfect your craft, learn as much as you can, and be great at what you do. This requires focus.

• Have a sense of urgency. One of the biggest factors that determines whether you turn your dream into reality is your sense of urgency. Is fulfilling your dream simply something you want to happen or is it something you are willing to work towards no matter what? Are you willing to push through obstacles despite the inconvenience, time, and resources they may cost you? You have to be so dedicated to living the life you’ve dreamed and achieving the things you desire that you constantly work towards them. Make timelines for what you hope to achieve and create tasks that you want to complete by a certain date. A dream without a timeline is just a wish. Turn your dreams into reality by having a sense of urgency.

• Be Bold and Dream Big.  According to William Ford, “whether you think you can or you can’t you’re right.” In other words, your thoughts and beliefs about what you think is possible shape your future. Do yourself a favor and dream big. Be bold about what you want to accomplish. Visualize yourself doing it. Then make a plan (and timeline) detailing things you can do to get there. Don’t limit yourself. Discover your purpose and excel.

Plan for the Unexpected

If there’s one thing I’ve learned as an adult it’s that sometimes things just happen. You may think you are on track with your career, your finances, or your personal life, but life has a way of surprising us. Sometimes these unplanned events are good. We get a promotion at work, another stimulus check from the government, or an impromptu visit from a friend we haven’t seen in a long time. But other times, these surprises are major problems we couldn’t have predicted or avoided, especially when it comes to finances.

You may be costing along, saving and investing a certain percentage of money and then something unexpected happens. Your car breaks down, your laptop dies, or something urgent comes up that requires your time, attention, and money. Up until a few years ago, these unwelcome occurrences would get me down and make me anxious. I’m a planner who would get frazzled whenever things deviated from how I envisioned.

In order to decrease my anxiety, and feel better prepared, I needed to start planning for these inconveniences, at least the financial ones. I used to just rely on my emergency fund, but then I realized I was needing to dip into that fund a little too often, so I had to put a better plan in place.

My solution was 3-fold:

1. Cut back on unnecessary spending elsewhere. I re-examined my budget and tried to think about ways I could cut back. For me, it was decreasing the amount of money I spent each month on food and wine, especially when I’d travel out of town. I set a preliminary spending limit every time I went to a restaurant so that I wouldn’t go overboard. I also began to cook more at home and was more diligent about searching for discounts whenever I’d travel out of town.

2. Set extra money aside each month. For me it was $200. Whenever I got paid I’d automatically plan for $200 to be gone in “incidentals.” If I didn’t have to spend the money one month then I could use it however I pleased but if I did need to spend the money then at least doing so wouldn’t totally wreck my budget. Having money set aside for these unexpected expenses made me less stressed when things would come up.

3. Increased my income. While I was waiting to see if I’d get a raise at my main job, I took matters into my own hands. How? By trying to make more money from other income sources. Whether it was working extra shifts at the clinic or trying to monetize my hobbies and side hustles, I tried to increase my income so that unexpected expenses wouldn’t totally destroy my budget and savings goals each month.

Do you also have added expenses that come up each month that throw you off your game?

If so, the solution isn’t to just charge the expenses on a credit card and hope to pay off the card someday. You may want to adopt a plan similar to mine so that you are more proactive and less reactive when/if these unexpected expenses occur.

5 of My Best Financial Decisions

As a young professional, I'm finally feeling as though my finances are on track. Although I've done several things to put myself in a decent position, there are 5 things that have helped me get on the right track and may help you as well. They are:

1. Learning about money. Many young professionals were not taught the basics of personal finance and investing in school. I myself had to seek out this knowledge and even when I did, I still had questions I had to ask other people. Despite the effort I put in, taking the time to learn about money management was one of the best decisions I ever made. Once I learned the basics, I was able to quickly get out of credit card debt. Doing so, saved me hundreds of dollars in interest payments and allowed me to start investing for retirement much sooner than I would have otherwise. The decision to aggressively pay down debt and increase my investments has allowed me to become more financially stable and create the foundation needed to build wealth.

2. Picking a career that pays a high salary. Not every job pays the same, but choosing a career that compensates well has done wonders for my finances. Instead of worrying about whether or not I can pay my bills on time, I can now focus on increasing my investments. Although one shouldn’t pick a job solely for the compensation, if there are multiple jobs you like equally choosing the one that pays more can have a positive effect on your finances.

3. Buying a slightly used car instead of financing or leasing a new one. When I was a medical student, I chose to buy a slightly used reliable car instead of buying or leasing a new one. When I became a resident physician, I again chose to buy a slightly used car instead of buying or leasing a new one. This decision saved me thousands of dollars both time. Instead of having a monthly car payment of $400-600, I use that money to invest in my Roth IRA and save money for future vacations and travel.

4. Living with a roommate for most of my twenties. This decision was hard to make at first. I was in my late twenties and really valued my own personal space. However, living with a roommate gave me the ability to live in a really nice place while still saving and investing a good chunk of my income. I had to prioritize my desires. Would I rather have the place all to myself or share a place for a few years and stack money I could use to pay down debt, invest, and save for fun trips? For me, living with a roommate was worth the sacrifice. As I enter my 30s I’ll likely get my own place, but choosing to live with a roommate in my twenties helped advance my finances in ways I can’t begin to articulate.

5. Investing early into retirement accounts. One of the ways many people build wealth and become financially independent is by investing money. One of the main ways they invest money is by utilizing retirement accounts (like their job’s 401K or opening up their own Roth IRA). By utilizing retirement accounts I am able to invest money in a tax efficient, passive way and build money over time. A big advantage to starting early in my twenties instead of waiting until I was in my 30s was that I gave the money more time to grow. The earlier I invest, the more time my money has to let the magic of compound interest work, which allows my money to make even more money overtime. Plus, investing early into retirement accounts taught me how to live below my means instead of inflating my lifestyle.

5 Changes to Enhance Your Life

1. Dedicate more time to your side businesses and passion projects. Take time to think about things you’d like to do or accomplish in your life. Perhaps you want to start a business, volunteer for an organization you love, or work on a passion project? Whatever it is, write it down and make a point to work on these goals periodically. One way to ensure that you are progressing is to brainstorm different times within certain days each week that you can dedicate to these goals. Make it a habit to work on the things you are passionate about on a regular basis.

2. Read more books, watch less tv. The most successful people have habits and character traits that are distinct from others. One of those traits is their intellectual curiosity and commitment to lifelong learning. One of the ways they do this is by reading books, listening to podcasts, and staying educated on a variety of topics. Unlike many typical Americans, most millionaires who were not born into wealth don’t spend as much time consuming entertainment. They don’t watch as much television as other people. Although they value relaxation, they are extremely selective about how they spend their days. Be mindful of how much time you spend consuming entertainment.

3. Spend less time on social media. Although social media can be a great way for us to check up on friends and give us a small glimpse into the lives of people we care out, there are downsides as well. One of the biggest drawbacks is that it can be quite addicting. Many people spend hours scrolling on social media each day without realizing it. Along with causing us to waste valuable time, social media can cause us to unnecessarily compare ourselves with others in ways that makes us less content with our own lives. In order to avoid feelings of discontentment and use your time more wisely consider cutting back on your social media use.

4. Get healthier – eat more nutritious food and exercise regularly. Many successful people value good health. They understand that sub-optimal health costs us extra money, since we have to pay for more frequent doctor’s visits and medicines to treat illnesses that could have been avoided. Bad health also costs us time. If you are healthier, you have more energy to get things done and can be more efficient with your time. You also tend to feel better in general. Consider eating healthier foods and exercising more regularly to improve your health and productivity.

5. Allocate more money to saving and investing. Part of being successful means practicing good money management. Instead of spending lots of money on frivolous things many successful people live below their means and allocate at least 20% of their money to saving and investing. You should consider doing the same thing. Make it a habit to save at least 5% of your income to build up an emergency fund. Consider allocating at least 10% of your income to retirement investing. You can use any remaining money to invest in taxable accounts, open college savings accounts for your children, or save money in a vacation fund for an upcoming trip. If you don’t do this already, make it a habit to save and invest a certain percentage of your income.

Beware: Your priorities can impact your lifestyle and net worth

When it comes to making money and living well as a young professional, we all have different priorities. Some people choose to spend a great deal on their family while others choose to live a fancier lifestyle or invest for their future. Although we may hope for more money, we may be stuck with our current salaries for the foreseeable future. Since we can’t rely on a large influx of cash, we have to prioritize spending money on the things that are most important to us. Although we have the freedom to choose what we want, the choices we make have a huge impact on our lifestyle and net worth. For example:

~If you prioritize living by yourself in the city… realize that this seemingly basic desire is considered a luxury. Many people want to live in the city close to various entertainment options and nice restaurants. They value having their own personal space and want the freedom to come and go as they please. Since many people have this same the desire, the demand for one-bedroom apartments in the city is high. Since demand is high, the prices are high. In my current city of Atlanta, a modern one-bedroom apartment in the city can cost around $1500 a month, if not more. Paying $1500 a month in rent may require a big sacrifice. It likely means that you cannot invest as much or save as much as you’d like each month.

~If you prioritize investing money for retirement… realize that doing so means the paycheck deposited into your account each month will be lower than it otherwise would. For a person making around $60,000 per year, who plans to allocate at least 10% of their income for retirement, their monthly take-home pay will decrease by about $500 per month.  For people who are already on a tight budget, getting $500 less each month may be a little too much to handle. For other people, the $500 per month is doable and they like knowing they are building their net worth and will be able to retire with enough money in the bank when they please. Retirement investing is vital, but it may require you to live below your means to a level you aren’t used to. You may have to decrease your bills by opting to live with a roommate or decrease the amount of times you travel.

~If you prioritize living a nice lifestyle (with fancy cars, good food, and lots of spare cash to spend)… realize this costs a lot of money. Choosing to live in a nice apartment or home will increase your monthly mortgage (or rent) each month. Choosing to lease or purchase a luxury vehicle may cause you to have a car payment that is well over $500 per month. Having spare cash to spend on concert tickets, frequent restaurant outings, and weekend bars can cost you hundreds of extra dollars as well. Although you have the freedom to live that lifestyle, understand that doing so may prevent you from being able to invest money for retirement. It may also preclude you from saving money in an emergency fund or being able to go on vacations without getting into debt.

~If you prioritize giving money away… realize this may require you to make a sacrifice in another area of your life. As a Christian, I tithe. This means I give away 10% of my income each month. While 10% may not seem like a lot, it’s a rather large chunk of my take-home pay. Because I give away 10%, that means I have 10% less money to invest, spend on housing, or use to save for a future vacation or wedding. To make up for this “loss,” I lived way below my means and shared an apartment with a roommate for 2 years until I was able to increase my income. Giving away money may be an important religious tenant for you as well. If so, think about how you can fit this financial priority into your current lifestyle.  

~If you prioritize saving money (for a nice vacation, future wedding, or house down payment)… realize this may require you to live in a cheaper apartment, invest a little less towards retirement, or be more frugal in your disposable spending. Perhaps you have a goal of saving $5,000 a year to finance a large international vacation and build up your emergency fund? This may require you to save an extra $400 a month. If you can’t figure out where to get the extra $400 you may have to get a side hustle or part-time job that can net you the extra money you need.  

~If you prioritize having a family (with children)… realize that although having a family with children can bring you joy, it may also add to your monthly expenses. With more people, you may need more space and need to rent a larger apartment or house. Because there are more people, you will also have to spend more money on food. If you have small children, you may have to allot a certain amount to daycare. All of these added expenses can amount to thousands of dollars per month causing you live a more frugal lifestyle and decreasing the amount of money you can allot to retirement savings.

My point? You may have to pick and choose what to spend money on. Until you increase your income, you won’t be able to do it all. Part of being a fiscally responsible young professional means that you have to prioritize your desires and figure out what’s most important.

• Does it mean more to you to build wealth by investing a large chunk of money for retirement or do you want your own personal space via a luxury one-bedroom apartment?

• Does it mean more to you to avoid going into debt by saving up for a fancy vacation ahead of time or do you want to live a nice lifestyle with expensive food, nice cars, and plenty of spare cash to spend on various forms of entertainment?

Part of being an adult means you have the freedom to make your own decisions and spend money how you see fit, but you can’t have it all, and neither can I. What are your priorities? What will you choose?

5 Habits That Can Make You a Millionaire

1. Setting up automatic investments. The vast majority of young millionaires achieved their financial status by investing money. Unless they are a celebrity or were born into a wealthy family, they had to be diligent about investing money either in the stock market, a business venture, or real estate. You must do the same. One way to do this is by making your investments automatic. Have a certain amount of money (aim for 10-20% of your salary) automatically deposited into your work retirement account, Roth IRA, or brokerage account. Invest the money inside of the accounts in index mutual funds, which make a profit of around 10% each year. Making these investments automatically prevents you from having to put money in the account each month. When you don’t rely on yourself to make the investment and instead make it automatic you increase the chance that you will meet your investment goals and accumulate wealth faster.
 
2. Having a separate account for savings. Along with investing 10-20% of their income, many young millionaires also have a certain amount of money they save. While most people start off with a goal of having $1,000 in a savings account for emergencies, many young millionaires and financially savvy folks exceed this amount. The general rule of thumb is to have 3-6 months of living expenses in a savings account just in case your income changes or you happen to lose your job. Aside from having money in a savings account, many financially savvy young professionals also save money for other things like yearly vacations, home purchases/renovations, holiday gifts, or car repairs. Consider setting up savings accounts for those things as well.
 
3. Living a modest lifestyle. Aside from saving and investing money, many financially savvy folks who achieve millionaire status also live a modest lifestyle. Instead of spending money on numerous expensive things, they tend to live below their means. In fact, there’s a saying that you can either look rich or be rich, but most people can’t do both. In order to ensure that you have enough money to save or invest 20% of your income you have to decrease the amount of money you are spending on other things. This means, you will probably not be able to lease expensive cars or buy a large home. Becoming a millionaire requires that you prioritize building wealth by investing a large chunk of your income. For most people, living a modest lifestyle is the sacrifice they make to invest the amount of money needed to build wealth.
 
4. Pre-planning large expenses/vacations. Most people don’t just wake up rich. Becoming financially successful at a young age requires a great deal of planning. Instead of being surprised by unexpected expenses or accumulating lots of credit card debt after each vacation many financially savvy folks plan ahead. They save in advance for large purchases and vacations. They create a budget for how much they will and won’t spend. Then they stick to it. A large factor in who does and does not accumulate wealth, depends on how disciplined you are and how well you plan ahead. Start doing so now.
 
5. Paying down [personal] debt aggressively. Lastly many financially savvy folks who end up becoming millionaires for the first time at a young age try to minimize personal debt. They try to avoid taking out huge car loans or mortgages and tend to pay back any money charged on the credit card within a short time frame. They understand that accumulating debt and keeping it for long periods of time costs them more money in the long run since they end up paying a great deal in interest. Most financially savvy people seek to make interest by investing money instead of paying interest by accumulating debt.
 
Tell me, do you want to be a millionaire at a young age? If so, what are some things you can start doing to put yourself in a good position to reach that goal?

5 Ways to Invest Your Stimulus Check

1. Invest the money in an index fund through a Roth IRA. A Roth IRA is a type of retirement account. One of the best things about investing money in a Roth IRA is that you can invest money without having to pay taxes on the profit you make. You can also withdraw your contributions at any time before retirement (tax-free) if you need the money for something else. If you invest in index mutual funds (like the Total Stock Market Index Fund) through a Roth IRA and leave the money in the account until you retire, interest will build overtime and you can make a large profit. The average interest rate/yearly profit of index funds is around 10% per year. Investing $1,000 of your stimulus check in the Vanguard Total Stock Market Index Fund is estimated to grow to over $17,000 in 30 years.

2. Increase the contributions in your 403b or 401K. Another way to invest your stimulus check is to invest in mutual funds through your employer-sponsored retirement account. Although you can’t physically transfer the stimulus money from your bank account to your work retirement account, you can go to your work portal and have your job invest $1400 from your next check into your work retirement plan. Similar to a Roth IRA, investing this money in a retirement account allows you to build wealth overtime. The benefit of investing this money in your work retirement account (or having the money deducted from your next check) is that it can save you money in taxes and may allow you to get extra money from your employer in the form of a retirement “match.” if you decide to have your job take out an extra $1400 from your check to invest in the Vanguard Total Stock Market Index Fund, that money is estimated to be worth over $24,000 in 30 years.

3. Open a 529 account to invest the money for your kid’s college. For those who are parents, investing the money in index mutual funds through a 529 account may be a good idea. A 529 account is similar to a Roth IRA or a 401K, but instead of using the money for retirement you can use it to fund your kid’s college education. Through a 529 account, you can invest in index mutual funds and allow the interest to stack up over time. Once your kid hits college age, you can use the money in this account to pay for their education. By investing money in this account, you can accumulate a lot more money for your kid’s education than you would by merely saving money in a savings account. If you invested the $1400 stimulus check in the Vanguard Total Stock Market Index Fund via a 529 account and let the money stack there for 18 years, that money will be worth almost $8,000.

4. Purchase index funds via a taxable account. Another way to invest money is to open up a regular brokerage account and purchase index funds through it. Similar to retirement accounts or a 529 account, a taxable account allows you invest money that will make you a profit over time. The good thing about a regular taxable/brokerage account is that you can invest money over time and withdraw your profits at any time (you don’t have to wait until retirement). You can also open these accounts invest in stocks or index funds through apps on your phone like Robinhood. The disadvantage to investing money in regular brokerage accounts is that you have to pay taxes on the profits you earn. So if you invest the $1400 stimulus check in the Vanguard Total Stock Market Index fund and it has a profit of 15% over the next year (so grows to $1610 making you a profit of $210) you have to pay taxes on the money at your ordinary income tax rate (which can range between 10-35% depending on your income level).

5. Open a custodial account for your children. Another way to invest the money is to open a custodial account, which is also known as a UGMA (Uniform Gift to Minors Account). This type of account allows you invest money on your kid’s behalf. If you aren’t sure if your kids will go to college and want to invest the money on their behalf to give to them when they are in their 20s, you can use this UGMA/custodial account. Similar to a 529 account, you can invest money for your kids, but unlike a 529 account the money does not have to be used for college. It is your kid’s money to use however they wish when they turn legal age (between 18-25 depending on the state).

Tell me, do you plan to invest your stimulus check? If so, do you plan to use one of the methods above?