How to Increase Your Net Worth

1. Calculate Your Current Net Worth

The first step to begin increasing your net worth is to gain an understanding of where you are now. Your net worth is equal to the sum of all your assets minus the sum of all your debts.

Net Worth = Assets - Liabilities

To calculate your net worth, follow these steps:

1. Add up all your assets. Add up the cash value in your checking and savings accounts, equity you have in your home or car, money you have in investment accounts and the estimated market value of any physical assets you own, such as jewelry and collectibles.
2. Add up all your debts. Find your current balance for any debts you owe, including credit cards, personal loans, auto loans, mortgages and student loans. Add all of your debts together to find the sum total of your liabilities.
3. Subtract your debts from your assets. The last step to calculating your net worth is to subtract the sum of your liabilities from the sum of your assets. The result is your current net worth.

If you have more debt than you have in assets, then your net worth will be negative. But don't fret if you're currently in the red—it's common, especially if you have a mortgage or student loans. Whatever your starting point, you can set a goal to increase your net worth over time.

2. Create an Emergency Fund

An emergency fund is money you set aside to help you stay afloat in the event of a financial emergency, such as an unexpected bill or a reduction in income. Not only does money that you save and earmark for emergencies count directly toward your assets, but saving for emergencies can help avoid relying on debt.

To create an emergency fund, calculate how much you want to save. Some experts recommend aiming to keep at least three to six months' worth of basic expenses in your fund. Then, turn on automatic transfers for a set amount of money each payday into a high-yield savings account. Choose a number that's realistic for you; for example, you might aim to set aside $100 from each paycheck.

Once you reach your emergency fund goal, you may want to keep those automatic transfers going. Now, however, you may direct them into another savings account to save for a different goal. For example, you could create a down payment savings fund for a future home or car purchase or sinking funds for other, smaller goals like vacations and holiday purchases.

3. Cut Your Expenses

Reducing your expenses can help you direct more money toward savings, which helps increase your net worth over time. Look for opportunities to cut back your spending. While you could take drastic moves to decrease your expenses (such as selling your car or downsizing your home), small tweaks can help you cut back too.

Here are some simple ideas:

• Cancel subscriptions you're not using enough to justify their monthly cost.
• Call your bill providers to negotiate your bills, or sign up for Experian BillFixer™ to have them negotiated for you.
• Start meal planning to build your menu around low-cost staple foods, such as pasta and rice, frozen veggies, chicken and eggs. Shop sales and buy in bulk to spend even less on food.
• To spend less on retail, aim to buy secondhand and be more minimal about how often you purchase new clothes, home goods or tech.

4. Pay Off Debts

Paying off your debts directly increases your net worth, so making a plan to pay off your debts should be high on your list of priorities. Start by listing out everything you owe. Note down the creditor, balance, interest rate and monthly payment due date for each.

Then, decide how you'll tackle your debts. When it comes to increasing your net worth, the best strategy may be to prioritize your debts by ranking them based on highest to lowest interest rate.

For example, if your highest-interest debt is your credit card, start by tackling that balance first. Then, move on to your debt with the next-highest interest rate. Be sure you continue to pay the minimum on all other debts to avoid hurting your credit and being charged late fees.

Paying less interest on your debts can help you pay them off faster, particularly if you're carrying high-interest credit card debt or loans. Consider looking into debt consolidation loans or balance transfer credit cards to lower your rates while you work to pay off what you owe.

5. Build Home Equity

One of the best ways to increase your net worth long term is by owning a home and building equity in it. If you're already a homeowner, simply continuing to make your monthly mortgage payments is an ongoing way to decrease your debt and increase your assets.

In that sense, making payments toward your financed home is like having another savings account that you deposit money into each month. Some people even choose to pay more than the minimum on their mortgage each month in order to build equity faster.

If you aren't already a homeowner, consider setting a goal to save up for a down payment on a home. Of course, there are merits to renting too. But homeownership is one of the central ways to build wealth. Building equity with your monthly mortgage payments, along with the effects of appreciation, means owning a home can be a strong method for increasing your net worth.

6. Increase Your Retirement Contributions

Investing for retirement is a cornerstone of growing your net worth. If you're currently investing with a 401(k), individual retirement account (IRA) or another type of tax-advantaged retirement account, consider upping your contributions to grow wealth faster.

Experts often recommend that you save 15% of your annual gross income for retirement if possible. If you're not there yet, consider upping your contributions gradually. For example, you could increase your contributions by 1% or 2% each year until you reach the percentage of your income you'd like to set aside.

If you aren't already, learn how to start saving for retirement now. If your workplace offers a 401(k) may find this to be the most convenient option because your contributions come directly out of your paycheck. But if you don't have a 401(k) at work, opening up a traditional IRA or a Roth IRA on your own can help you increase your net worth and achieve financial freedom in retirement.

7. Boost Your Income

Increasing your income makes it easier to put more toward savings and pay off debt—both of which are good for your bottom line of increasing your net worth.

Increasing your income isn't necessarily simple, but striving toward earning more over time can make a big impact. Here are some ideas:

• Consider a side hustle. You may not have time for another full- or part-time job on top of your current schedule, but a side hustle could be a flexible way to bring in steady income on the side. Driving for a ride-hailing service, freelancing in your current field or caring for pets or animals are a few examples of how you could earn more.
• Ask for a raise. If the timing is right, you could request a pay increase from your current employer. Start by gathering examples of how you've stepped up in your current role to prove your worth.
• Earn a certification. Earning an in-demand certification in your field can help you negotiate for higher pay in your current role, or leverage for higher pay in your next role.
• Sell things you don't need. Selling unwanted clothing, furniture or tech online can help you bring in some cash on the side while decluttering your possessions. Online marketplace and local yard sale groups on social media make this an accessible form of income.
• Consider a job switch. If you're not satisfied with your current job, you could update your resume and begin a job search. Consider whether you could find a better-paying job in your field, or pivot to apply your current skills in another industry.

Build Your Net Worth Over Time

By looking for ways to up your savings and pay off debt, you can reach your goals for a higher net worth. In addition to lowering your debts and increasing your assets, pay attention to your credit score.

When you have good credit, you can leverage your high score for better rates when you need to borrow. That can mean saving hundreds or thousands on a mortgage or auto loan, for instance. To see where your credit stands, check your credit score for free through Experian. You can also sign up for free credit monitoring to track your score over time and receive alerts whenever there's a change to your credit.