April 29, 2008

Four Quick Ways to Increase Household Net Worth

Last week I wrote about household net worth, cash flow and budgeting, and how to create a financial plan. To add to that chain, here are four ways to improve your household net worth:

1.> Improve Your Investment Returns

• If you’re looking for more income to invest, switch some of your equity positions to preferred shares, bonds, or higher yield stocks. This will increase your cash flow.
• Increase your positions in common stock. You also increase the amount of risk you assume, but the returns may be higher. Given the current condition of the stock markets, buying now is an excellent opportunity to pick up shares in good companies.

2.> Invest More of Your Discretionary Income

• The adage is “pay yourself first” and by fixing your monthly or weekly savings and investment contributions will systematically increase your household net worth.
• If you’re already investing 10% of your income now, you probably don’t even miss it any more and have adapted to getting by with a little less.
• If you want to get aggressive and think you can meet your regular obligations, try increasing your systematic savings to say 11% or 12%.

3.> Minimize your taxes

• If there is an opportunity to reduce the amount of tax you have to pay, take advantage of it (legally of course).
• Take advantage of every tax credit, deduction, or other opportunity available.

4.> Reduce Your Debt

• Your debt is one whole side of your household net worth. By focussing on debt reduction you can significantly improve your net worth and improve your cash flow. It’s a snowball effect: The more you pay off the more money you have to pay off more. Get fanatic about it.

Filed under Financial Planning