The Most Authentic Guide on Personal Finance and Investments


Words of Wisdom : "No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant." ~ Warren Buffett

Top 10 ways to turn your Net Worth positive and multiply it

Few weeks back I had asked 'Is your Net Worth positive or negative?'. This, by the way, is the first step towards becoming rich and prosperous. It reveals your true financial position and identifies the critical areas that you must address to become a crorepati without banking on Shri Amitabh Bachchan's Kaun Banega Crorepati.

There is no big secret or a hidden formula involved here and I am sure that many of you would have already spotted the chinks in your financial armour.

However, for your convenience, I am enumerating top 10 ways to ensure that your net worth soars day by day... without, of course, compromising too much on the fun factor. 

Given that the formula has only two elements viz. Assets and Liabilities, you have two broad categories of action to be taken.

(a) Increase the Assets
1. Logically you must accumulate the Type 1 assets as they result in inflow of money and hence add to your net worth. As such, you must generate surplus money from your income and keep buying Type 1 assets month after month, year after year. 

2. Within the Type 1 assets also, you have to own more of those that deliver higher money inflow vis-a-vis those offering meagre returns. (Remember my distinction between the Wealth Creators and Wealth Preservers in my earlier blog 'Four outcomes of any financial decision'?)

3. Though Type 2 assets (i.e. consumption assets) drain money, they are the very reason why we earn money. What's the point in having tons of money, if we don't get to spend it? Hence, to say that we shouldn't buy Type 2 assets, would defeat the very purpose. The only word of caution is... moderation. Be prudent with your purchases and you can enjoy the best of both the worlds.

4. [IMPORTANT] Ideally, acquire the Type 2 assets, not from your primary income, but from the secondary income that your Type 1 assets generate. While, this would have some impact on the compounding, at least the basic accrual to your net worth is neither disturbed nor diluted.

5. The biggest asset, of course, is your mastery over your personal finances. If you can control your money... perfectly, you can achieve the maximum punch with minimum resources. So don't let go of any opportunity to enhance your financial knowledge. 

(b) Reduce the Liabilities
6. Exorbitant interest rates on credit card and personal loans rapidly deplete your net worth. This damage is pretty sharp and swift. Hence, the sooner you get rid of them the better it is.

7. Vehicles depreciate So it makes ample sense to keep your vehicle loans to a minimum. You can't afford to pay out too much interest for a depreciating asset and simultaneously realize your millionaire aspirations.

8. Contrary to the statement 'reduce your liabilities', you can augment your home loans. More often than not, the appreciation in property prices generates more cash than the interest outflow. This benefit is further boosted by the tax benefits on such loans. So on a net-net basis, there is addition to your net worth. 

9.  Lenders have all kinds of tricks up their sleeves to extract the maximum from you. In today's world, when bankers have lost all trust, you cannot afford to be an ignorant borrower. Therefore, by being astute with your 'money fundas' you can ensure minimal costs on your loans.

10. And finally, you have many ways to legally slash your tax outgo on your Income and Investments. (Among many articles on the subject, you can also read 'How to Save Tax' and 'Top tax-saving options for 2013-14 Part 1 and Part 2').

You Learn A Lot By READING... And Even More By SHARING.

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Ignorance is like a SIGNED BLANK CHEQUE... anyone can MISUSE it.

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