You may well have read our previous articles explaining the finer points of net worth. And hey……..this is the complete sum of your personal worth so it’s very important. We’ve seen how to build up your net worth by earning more, saving and even investing. But once you get into a really good position it’s easy to knock the castle down.
These next articles then, will look at how not to destroy your net worth. We care about you, so please take heed of the warnings about to come your way. And let’s begin by reminding you of the basics?
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Big Spending Can Wreak Havoc!
Remember your net worth has accumulated simply because you ended up making more money and saving as opposed to the money spent on your liabilities. If the first is greater than the second then of course you have a positive net worth.
By the same token you can easily work out if the opposite happens and you spend more than you earn, and dip into savings then your net worth will slide away into the sunset! This might happen because you suddenly start to borrow big on clothes, furnishing, vehicles or credit cards. If your budget remains firm and disciplined then this problem simply won’t arise.
So the lesson here is if you start spending suddenly above your limit then it won’t take long to do long term damage to your financial health! Don’t do it! Don’t spend top money on things you really don’t need or want!
THERE IS ONE BABY MANY PEOPLE DON’T THINK ABOUT AND YET THIS CAN HAVE THE GREATEST CONSEQUENCES ON YOUR NET WORTH?
Failure to Make the Most of Your Peak Earning Power!
Oh yes……don’t think we haven’t thought of everything here! Unless as an individual you’re very lucky to be a twenty something entertainer, rock star or professional sportsman or woman, then the chances are you won’t be making big money at this stage. You can’t generalise of course, but people tend to hit the peak earning area in their early 40’s and go on to maximise this until their mid 50’s.
This is because quite a lot of twenty something’s could still be in education especially at the lower end. And let’s be honest? Top earnings arrive with experience and a senior position at work or otherwise. It makes sense right? So there’s one thing you should avoid if you can and that’s: ‘Job Hopping’.
If you change your job frequently or profession for that matter, then this will make it hard for you to maximise earnings. Sometimes for various reasons it can’t be helped of course, but the best way to peak well, is to stay in the same career or choose your jobs very carefully. All of this can have a big impact on your net worth.
Here’s Some Top Advice: If You Have No Retirement Plan in Place Or for That Matter Any Savings, Then Net Worth Simply Won’t Exist!
You simply must accumulate your savings but at the same time keep you spending lower than your earnings.
But crucially you really need to have some sort of a retirement plan. If you don’t then it’s easy for this money to be spend each month. This also means the danger of going over your limits.
The fact is with no investments or savings you can seriously hold back or even erase the net worth process big time! But of course there’s one thing that really erode at your net worth over time.
Should be a simple concept on the face of things but we don’t always completely understand what debt is? You must remember not all debt is either a thing or a bad thing, and not all of this debt is equal. Some debt we simply need to have – some debt we don’t need to have.
It’s all about balance. Yes be in little doubt debt can be a big threat to your total net worth and your financial standing in the future, so the watchword has to be control! Even if you just start out with small amounts of debt on a credit card for example, this can quite quickly get out of control because of the high interest rates involved.
In part 2 we’ll look more at this and give more advice on just how to stop your net worth crumbling.
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