Your net worth is the most precise method to measure your wealth and financial growth. It shows your financial habits and decisions by summing up everything you own.
People with a net worth mentality attract positive financial progress through investing and saving; as opposed to ones with a paycheck mentality who seek to increase their income only. Investor, Taylor Larimore in his book, Bogleheads‘ Guide to Investing says It’s important not to confuse wealth with income. If you focus on income as the measure of your financial success, you ignore the most important measuring stick- your net worth’.
How to calculate your personal net worth
Begin by summing up of your entire assets such as bank account balances, shares, property, vehicles, and securities. Next, subtract the total sum of your liabilities such as loans, bills, taxes etc. If your assets are greater than your liability, you have a positive net worth.
How does home equity affect your net worth?
The baseline for improving your net worth is increasing your assets and decreasing your liabilities. It’s essential to explore good assets options with the most potential. This is because most assets depreciate and lose value quickly.
Owning a home is a sure fire way to increase your net worth because it will appreciate in value over the long haul. In fact, according to the Australian Bureau of Statistics, the median household net worth in Australia is $527,000 after subtracting financial liabilities.
Speaking to CNBC, entrepreneur and financial advisor David L. Bach insists that buying a home is an escalator to wealth.’ The self-made millionaire writes in his book The Automatic Millionaire ‘you can easily spend more than half a million dollars in rent over the years, and have nothing to show for it. Or, you can spend the same amount paying for a mortgage and end up with your own home’.
For most people (especially those who don’t have major investments such as stocks or bonds) the biggest asset is their home. This proves that home equity is one of the most efficient and direct ways to boost your net worth.
How to use your home equity to grow your net worth
1. Improve your property
Improving your property increases the value of your property which boosts your home equity and increases your net worth. Home improvement is a proven way to increase the value of your home over time.
However, new appliances and minor cosmetic features may not have a significant increase in your home equity. For significant value increases, you have to do fairly major home improvement and remodeling.
According to the National Association of Realtors, and USA Today, home projects with the highest return on investments include; making your home more energy efficient, roof replacement, improving landscaping, updating your kitchen and bathroom and fixing up your flooring.
2. Getting a caveat loan to start a business
Investing in incoming generating activates is critical in helping you grow your net worth fast. Building your own business has unlimited revenue potential and makes your money work for you. It creates an additional source of income which is a good strategy for wealth creation.
According to Investor and serial entrepreneur Tanishk Nalamolu, constraints on initial capital are of the biggest challenges in starting a new business. Other studies show financial challenges is the main factor that hinders most entrepreneurs. Lack of funding also threatens your ability to meet future business obligations, which can lead to business failure.
However, if you want to launch your business, do not let financial challenges discourage you. A caveat loan is one of the fastest ways and easiest ways to obtain funds for your business. It is a fast settling loan that is secured against the amount of equity on your home.
Caveat loan specialists Maxiron Capital state, “banks run a hard credit check on the loan application process for all other types of loans. Unlike conventional loans, caveat loans do not require credit checks or debt to income ratio. This means that you don’t have to worry, even if you have a bad credit score or some extra debt.
In addition, a caveat loan gives you fast access to capital. With accessible equity in your home, you can obtain the funds within 24 hours. This type of loan is short term and you can pay it within 12 months from your business’ cash flow.
3. Home Repairs
Another important, yet often overlooked aspect of increasing home equity is home repair. Although routine maintenance may be tedious, it will prove to be worth it in the long run. Common maintenance issues like a deteriorating roof, clogged gutters, driveway damage, and leaks will considerably decrease your home equity over time. Moreover, the longer you put off the repairs, the more expensive they will be.
Inspect the condition of your walls, roof, foundation, walkways and attic, every few months. What may seem like simple repairs have a massive impact on your home equity position.
4. Lower your mortgage payment
To increase your net worth and home equity, you must consider reducing your mortgage. Your home equity is calculated by deducting the amount of loan you’ve paid from the market value of your home. Reducing the balance of your mortgage increases your home equity and net worth in general.
Make extra payments on your mortgage to speed things up. To achieve this, begin by creating a realistic budget to track and reduce your expenses. Spend the extra cash you save on your mortgage.
Also, make a list of any unused valuables in your home you such as; computers, jewelry, designer shoes, gift cards etc. Sell these items and use the extra income to pay off some of your home loan.
5. Rent out your home
This is another outstanding way to increase your net worth. Leasing a section of your house can not only help you in your mortgage monthly payments but also increase your income. The more money you have the higher your net worth and the faster you can pay off your debt.
Having a mortgage on a house or home doesn’t stop you from leasing out sections of it. There are always singles and students looking for a relatively cheap dwelling place. It’s most likely that it will be a temporary dwelling place for them, so they could be out by the time you finish paying your mortgage and have the whole house back if you want to.
You could go further and build an extension to make it roomier to fetch more in rent. Just some touches that increase its worth for rent would go a long way.
Conclusion
Home equity has a positive effect on your net worth and is one of the main sources for wealth creation. Less any expected liabilities/expenses, your net worth will increase by the same amount your home is valued.
Making important changes such as; improving your property, getting a caveat loan to start a business and reducing your debt will contribute significantly to increasing your net worth.
