{"id":52267,"date":"2021-10-17T10:20:00","date_gmt":"2021-10-17T14:20:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=52267"},"modified":"2021-10-25T12:35:44","modified_gmt":"2021-10-25T16:35:44","slug":"how-to-build-your-net-worth","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/how-to-build-your-net-worth\/","title":{"rendered":"How to Build Your Net Worth: Leverage Your Money"},"content":{"rendered":"\n

How do rich people grow their wealth? What role does mindset play in wealth building<\/a>? <\/p>\n\n\n\n

The route to wealth is to leverage your money through investments that create long-term growth. Building your net worth starts with adopting a future-oriented mindset<\/a> about money: you need to think of the money you earn as seeds that you can plant in order to grow more money for your future wealth.<\/p>\n\n\n\n

Here is how to build your net worth in five steps, according to financial educator T. Harv Eker.<\/p>\n\n\n\n\n\n\n\n

Think Long-Term, Leverage Your Money, and Build Your Net Worth<\/strong><\/h2>\n\n\n\n

Rich people plan for their long-term wealth by growing all of their financial assets <\/strong>(their net worth). The more money they grow, the less they have to work to pay for their lifestyle. Rich people work to receive an income but they also leverage their money in a way that makes it grow for them in the long term<\/strong>. <\/p>\n\n\n\n

Eker gives the following five-step advice on how to build your net worth:  <\/p>\n\n\n\n

1) Learn about investments: Read financial books or journals and then begin investing your money. Consider hiring a financial planner to manage your investments for you.<\/p>\n\n\n\n

(Shortform note: Eker doesn\u2019t offer practical advice on how to choose and set up investments or create passive income<\/a>. Many finance books, including I Will Teach You to Be Rich<\/em><\/a>, The Automatic Millionaire<\/em><\/a>, and The Millionaire Next Door<\/em><\/a>, explain how investments work and discuss the benefits of leveraging your money in ways that make it grow. These books also offer detailed strategies to help you set up and manage your investments to create ongoing income in the form of compound interest. The authors of these books, in contrast to Eker, say that you shouldn\u2019t need to hire a financial planner once you understand how to balance your investments.)<\/p>\n\n\n\n

2) Switch your focus from earning money through hard work to earning money from passive income. Write down three ways you can create income without working. Research and then act on these strategies.<\/p>\n\n\n\n

(Shortform note: While Eker doesn\u2019t elaborate on how to create passive income, there are many ways you can create passive income streams<\/a> such as selling digital products, renting out property, or investing your money in an account that applies compound interest<\/a>.)<\/p>\n\n\n\n

3) Write down your current net worth\u2014add up the value of everything you own such as your cash, current business, investments, and real estate. Then subtract what you owe such as your mortgage payments or other debts. Next, write down your ideal net worth\u2014the total value of all of your assets. What amount will allow you to achieve financial freedom (that is, you won\u2019t need to work to live comfortably)? Track your net worth every 90 days\u2014this will motivate you to keep moving toward your net worth goal.<\/p>\n\n\n\n

(Shortform note: Eker doesn\u2019t provide advice on how to determine your ideal net worth. According to The Millionaire Next Door<\/em><\/a> (Thomas J. Stanley and William D. Danko), your ideal net worth should be<\/em> based on your income and your age. Stanley and Danko present the following formula: Multiply your age by your taxable income, then divide this amount by 10, and subtract any inherited money. The result is what your net worth <\/strong>should be<\/em><\/strong> according to your income and age<\/strong>. If your actual net worth is significantly below this figure, you\u2019re probably living a consumption-orientated lifestyle (spending more than you save). On the other hand, if your net worth is significantly above this figure, you\u2019re already practicing wealthy habits.)<\/p>\n\n\n\n

4) Develop the habit of directing your money towards different savings and investment accounts regardless of what you earn. This act will reprogram your money mindset<\/a> into believing that you can effectively handle more money and will increase both your confidence and your financial setpoint<\/a>. Divide your income and deposit into the following categories<\/strong>:<\/p>\n\n\n\n