Boosting Your Net Worth: What You Should Know About Life’s Common Liabilities

Net WorthYour net worth is pretty simple to calculate, but there’s more to your finances than just a dollar amount. Even if you have a high net worth, the nature of your liabilities could be holding you back from your maximum potential. Your net worth changes frequently in response to your earnings, saving, and spending habits. If you want to increase your net worth from where it is now, you basically have three options. You can reduce your liabilities, increase your assets, or do a combination of both.

Your Mortgage

Your mortgage is probably your largest or most valuable asset. It serves a dual purpose – giving you a place to lay your head at night and building up a savings in the form of home equity. As your equity value increases, your net worth increases. But how do you increase the equity value of your home?

Well, there are a few ways. You can wait for market forces to push up the total value of your home while you continue to pay down your mortgage. You can also do renovations to the home if you want to take a more proactive approach.

In general, renovations like updated kitchens and bathrooms have the highest payoff. Upgrading your counter tops to granite or some other non-porous stone will almost guarantee a higher sale price. Hardwood floors, stainless steel appliances, and real stone tiles in the bathroom all add value and quickly.

Finally, doubling up on mortgage payments, using a portion of your investment earnings and even principal to pay off the mortgage early, or switching to bi-weekly payments will decrease the amount of interest you pay on your home loan and rapidly increase the equity in the home.

A related expense with mortgages is homeowner’s insurance. While you can certainly shop around for better rates, one of the best ways for high net worth individuals to improve their net worth is to use premium financing companies to pay the premiums. A premium financing company is a financial institution that lends money to high net worth individuals so that they can pay premiums on insurance policies.

Why do this? Because the loan, even with interest is often cheaper than paying premiums directly. The savings you realize can then be used to pay additional payments on your mortgage, further improving your net worth.

Student Loans

Student loans are another common liability that even high-net worth folks have to deal with. The average student loan balance is $24,301 as of 2012, according to the Federal Reserve Bank of New York. Roughly 25 percent of students owe at least $28,000 while 10 percent owe more than $54,000. A small, but growing number of people owe $100,000 or more.

Most students hope to pay off their student loans in short order, but the reality is that these loans are being stretched out for decades. Out of 27 million people in the U.S. who have some type of student loan, about 40 percent are aged 30, roughly 42 percent are between the ages of 30 and 50, and 17 percent are older than 50.

If you’re looking for a quick way to knock down that debt, it’s often just a matter of good budgeting. Sometimes consolidation works, especially for non-federal student loans. Getting your interest rate as low as possible will help you pay off the loan more quickly.

Credit Card Debt

Credit card debt is a problem that nearly everyone faces at least once in their lifetime. Even high net worth individuals get into trouble sometimes. If you’re struggling with this, you’re not alone. People with credit card debt often owe more than $15,000. If you’re making just the minimum payment on this amount, it would take you about 33 years to pay off, and you’ll rack up more than $20,000 in interest charges.

That’s not doing your net worth any favors. Start with the lowest interest rate card first. Once that’s paid off, move on to the next-highest interest rate card, rolling the just-paid-off-credit-card payment into the next card. Repeat this process, “snowballing” your debt until everything is paid off.

Car Loans

It doesn’t matter what you drive. All Lexus’, Mercedes’, BMW’s, and fancy sports cars come with loan payments (at least for most people). Getting these loans paid off pronto is key to improving your net worth.

If you’re financing it at preferred rates (i.e. 0.0 percent), it may not make sense to pay off the loan to improve your net worth. However, higher interest rate loans should definitely be refinanced periodically to take advantage of lower principal amounts.

Jermaine Easterwood works in personal finance. He enjoys writing for finance and money management blogs to help people make the most of their assets.

Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, of course, writing. She is currently the editor-in-chief of

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