Your net worth is one of the most important figures measuring financial health. A positive net worth means you have assets that exceed your liabilities. Why is that good? Beyond the “sleep well at night” factor, a high net worth means that you’re possibly in a financial position to retire substantially all of your debts at any time. The higher your net worth, the better off you are. Here’s how to keep raising the bar and keep those assets ahead of liabilities.
Your home is quite possibly the largest asset you own outside of high-balance pension and retirement accounts. The higher appreciation you can get out of it, the higher your net worth, all other things being equal. Keeping a low mortgage balance is key to keeping equity high.
Fortunately, it’s not all that difficult. An “all in one” mortgage is one way to rapidly pay down a high mortgage loan. Using this special loan feature, all income is used to pay down your mortgage balance. Then, like an ordinary bank account, you have access to all of the equity in the house to pay bills.
Unlike a normal bank account, you access the money via loans. It’s a revolving line of credit. While you do pay interest on these loans, they’re paid off very quickly, so very little interest accumulates. In fact, using this loan feature can help you pay off your loan 5, 10, even 15 years early while paying less in interest than a traditional 30 year amortized loan.
As a final measure, consider something like American Premium Finance. Premium financing allows you to lower the cost of homeowner’s (and other) insurance by using loans. The loans are structured so that total loan payments do not exceed total premium payments for the duration of the policy. In many cases, the loan payments are lower than just paying the premiums directly.
A Vacation Home
Vacation homes might have a significant positive effect on your total net worth. How? In many cases, these non-primary residences are paid with cash outright. Since there’s no (or a very small) loan balance, the equity value goes straight to the asset side of the accounting ledger, providing an immediate boost to your net worth.
Every year that the residence appreciates in value, your net worth grows. If you did use a loan to purchase the vacation home, approach the issue in the same way you would your primary residence. Work to pay off the house using an “all in one” loan, mortgage acceleration using insurance and other investments, and making additional payments to the principal amount.
Stocks, bonds, mutual funds, bank CDs, ETFs, annuities, and even life insurance all contribute to your net worth. Stocks and bonds are obvious benefits. The current market value is more liquid for most stocks than bonds, but some bonds do have liquidity advantages if they’re short-term. ETFs, bank CDs, and mutual funds can often be sold immediately for cash, if needed. These make your short-term assets look amazing and boost your net worth at the same time.
Annuities and life insurance contribute to your long-term assets. The cash value in an annuity policy adds directly to your net worth, while cash values in permanent life policies add to it over time.
With both types of insurance policies – annuities and life insurance – cash values are typically only liquid during retirement or after several years of making premium payments (in the case of life insurance). Be careful with life insurance – it can add substantially to your estate, moving you from a position of not owing estate taxes to owing them. If that happens, you’ll need to enlist the help of an estate planning attorney to help you cope with the financial ramifications.
Art and Collectibles
Art isn’t really liquid, but it is an asset, and it’s one that can add substantially to your net worth over time. Most people have a hard time valuing an asset like art, so you should consider getting it appraised. Collectibles like gold, jewelery, and antiques can also add substantially to your net worth.
These items also require special insurance because they are usually not covered under your basic liability or property insurance. Special endorsements for antiques and collectibles are almost always required, along with a higher premium.
Still, even with the higher premiums needed to insurer these types of assets, it’s nothing compared to the value they add.
Jermaine Easterwood is in money management. He often writes for financial blogs to help others make smart money choices.