There aren’t many topics I enjoy discussing more than increasing my net worth.
If you’re anything like me, you probably love hearing good tips and tricks on saving money. Coupons? Yes, please! Cash back? You got it!
Ironically, some of the best money saving tips I’ve come across in my financial journey, have involved spending money. No, that’s not a typo, I’ve actually increased my net worth exponentially once I’ve fully grasped this concept.
This is a guest post written by Jessica from Life Family Etc. She’s got some great tips for increasing your net worth!
Table of Contents
INVESTING
Sure, there’s risk to investing. But if you are a smart investor, this is one of the greatest ways to make money through spending.
My husband and I have several investments, our favorite being in real estate. We had to spend money to purchase our first rental property, but we instantly started making that money back through cash flow (rent income – mortgage expenses). Now, we have a property that someone else is paying for, but we’re making money on top of that! Having someone else pay down our mortgage while the house appreciates over time + cash flow = a significant increase to our net worth.
If you’re interested in investing in real estate, check out my Guide to Rental Property Investing!
FORCED APPRECIATION
If you’re a homeowner, you’ve probably heard the term “appreciation”. This is how much your home (or asset) has increased in value. For example, if you bought your home 10 years ago for $100k, it may have appreciated another $100k. If you were to sell it today, it would now be worth $200k!
While appreciation may happen naturally with changes in our economy and cost of living, there is such a thing as “forced appreciation”. This occurs when you do something to increase the value, rather than waiting for it to happen naturally.
A great example of forced appreciation is when you spend $20k on a kitchen remodel, which increases the value of your home by $50k.
If you know someone who flips houses for a living (or are obsessed with home improvement shows on HGTV), this is how they make money!
COMPOUNDING INTEREST
Compounding interest is essentially paying (or earning) interest on top of previous interest. For example, let’s say you have $100 credit card balance that accrues interest in the current month. Next month, you will accrue interest on the $100 + the interest from the previous month. Compounding interest is how so many people get stuck in debt. Once you get behind, you’re paying interest on interest on interest…and that adds up!
So, how does spending more save you money? Well, if you have your $100 credit card balance and choose to pay off the entire balance, you never accrue interest!
The same concept applies to large loans. If you have student loans (or mortgage), paying more than the minimum payment can save you tens of thousands of dollars and cut the life of your loan by half!
CREDIT SCORE
Paying off your loans can impact more than just the compounding interest. Did you know that ~30% of your credit score is based off of balances owed? Making larger payments towards your debt balances can drastically improve your credit score.
Having a higher credit score can get you better loans in the future with much lower interest rates. Which will in turn lower your compounding interest!
See how it all comes full circle?
Jessica blogs at Life Family Etc.–where she loves to discuss side businesses and money saving tips. You can follow her blog on Pinterest.