Be prepared for life's challenges.
Figure out your net worth and build on it.
Your net worth. It sounds like something only rich people worry about: movie stars, successful surgeons or business tycoons. But even if you’re not a billionaire like Warren Buffet or Bill Gates, you should still understand what net worth is and why it’s important to increase yours.
It’s not as complicated as it sounds. You don’t need to dive head first into the stock market or launch a wildly successful business. All it involves is a series of smart steps that anyone can take. Here’s what you need to know:
Net Worth Meaning
Most people equate high income with high net worth. They’re not always related. Consider the business tycoons mentioned above. If they make $1 million a year, but also spend $1 million, they have zero net worth. In contrast, a computer programmer, nurse or plumber making $60,000 a year who consistently saves 20% of each paycheck will have a higher net worth than the high-rolling business executive.
Do the Calculations
To calculate your net worth, simply add the value of all your major assets: cash in checking and savings accounts, stocks, bonds, retirement accounts, annuities, real estate holdings, vehicles, and any valuable collectibles or home furnishings. Then, subtract all your liabilities, which can include your mortgage, outstanding loans, credit card debt and other money owed. The result is your personal net worth. Need help?
Why It Matters
It’s possible you’re one of those people who don’t judge themselves by the size of their bank balance. That’s fine. People don’t grow their net worth just to boast about it. They grow it so they’re ready for life’s changes and challenges – so they can buy a home, raise a family, pay medical bills, send kid to college, care for aging parents, and prepare for retirement. Remember that recession we just endured? Building net worth now will make it easier to weather the storm of future pay freezes and layoffs.
Build A Foundation
Experts say you should put 20% of your income toward savings. A big chunk should go toward retirement savings. Take advantage of your employer’s 401(k) or 403(b) plan. Make sure you’re contributing enough to get the maximum employer “match.” Also consider opening an Individual Retirement Account that will provide money for your golden years as well as potential tax breaks for the present. Paducah Bank can help you choose between Traditional and Roth IRAs and provide options for your investments.
Grow Your Savings
Paducah Bank can help you make the most of your money. You’ll need a checking account to cover your routine expenses. But you should also consider opening interest-bearing accounts. Savings accounts, Money Market Accounts and Certificates of Deposit offer steady returns with no risk. Come visit Paducah Bank and we’ll get headed in the right direction.
About the Markets
Should you invest in the stock market? There’s no right answer. The fact is, adjusted for inflation, the market has averaged 7% annual growth since the Great Depression. But that’s just an average. There are up and down years. There are also some investments – mutual funds and bonds, for example – that are less risky. Paducah Bank's wealth management team can help you decide which investments suit your personality and lifestyle.
Manage Your Debt
Remember the formula for computing net worth? You subtract what you owe from what you save. That’s why it’s important to keep a close eye on your debt. Shop around to get a mortgage and a car loan with the lowest rate. Choose a credit card that holds down interest charges as well as earns you rewards and make regular payments to keep the balance low. Consider applying for a Paducah Bank personal loan, home equity loan or debt-consolidation loan to pay off other, higher-interest debt.
Obviously, the less you spend, the more you save. Dine out less often. Resist buying that new gadget - at least until it goes on sale. Use Groupon and other apps that offer product discounts. Cancel your premium cable channels and go with inexpensive streaming services. Review your life, home and auto insurance coverage to make sure you’re not paying more than you should. Paducah Bankoffers various low-cost, comprehensive polices to provide security for you and your family.
Track Your Progress
It’s a good idea to invest in some household budgeting software so you can see exactly where your money is going. Then continue to calculate your net worth at regular intervals. Doing so will provide a mental boost when you make progress and shake you into reality when you see yourself spending too much. In short, your net worth will reveal where you are trending financially and whether you’re on track toward your financial goals.