Net Worth Blueprint
The order in which you should advance your Net Worth. We break down all the areas of focus into an easy-to-follow sequential list. The difference between our list and others is that we consider human psychology. Why Tracking Your Net Worth Matters?
1
Satisfy Your Monthly Needs Without Incurring More debt
Ensure that you can pay all your current debt minimums, living expenses, utilities, and anything else you need to survive on a monthly basis. This is the bare minimum to survive in this world. It might be time to cut back on unneeded expenses and frivolousness.
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2
Save an Immediate Safety Net of $1000
Before anything else, ensure you have a minimal emergency fund—say $1,000—to cover unexpected expenses without debt. This will help transform the way you look at money. Not relying on debt is a very freeing experience. Although $1000 is not enough to protect you from most problems, it is like having an umbrella in the rain—just enough to give you some peace of mind.
3
Eradicate Predatory Debt
If you have loans with extremely high interest rates (e.g., payday loans exceeding 100% interest), prioritize their immediate repayment. These loans often trap borrowers in a cycle of debt that is hard to escape and should take precedence even over the employer match.
4
Take Advantage of Your Employer Match
Secure all available employer matches on contributions to retirement accounts like 401(k)s. This is effectively free money and should not be left on the table.
5
Insurance is Active and Deductibles can be Afforded
First, identify any critical insurances that could catapult you back into debt. Ensure you have enough saved in your emergency fund to cover all the deductibles for your essential insurance policies, such as health, car, and property insurance. This step prevents major financial setbacks in an accident or health issue.
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6
Pay off High-Interest Debt
Pay off all high-interest debts, credit cards, loans, or any balances with interest rates significantly higher than potential investment returns. It depends on the current economic strength. My rule is that it’s about 60% of the historical average. This means that if you can make, on average, a 10% return on the S&P 500, then any debt over 6% would be qualified as a high-interest debt.
7
Fully Funded Emergency Fund
Expand your emergency fund to cover 3-6 months of expenses. This larger safety net provides a buffer against job loss or other major financial disruptions.
8
Health Savings Account (HSA)
If you have a high deductible health plan, maximize contributions to an HSA, which offers triple tax advantages.
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9
Max Out Retirement Contributions (ROTH/Traditional):
Maximize contributions to tax-advantaged retirement accounts (e.g., Roth IRA, Traditional IRA) to secure your long-term financial future.
10
Over Funded Emergency Fund of 6-12 Months of Living Expenses
Save a six-month emergency fund. If your six months of expenses are less than $10,000, you should save a minimum of $10,000. For those in more volatile industries, business owners who have irregular income, or those who leverage risk, consider bolstering your emergency fund to 12 months.
Once you pass number 10 in our Net Worth Blueprint, the order should be based on your financial goals and priorities.
11
Taxable Investments
With tax-advantaged retirement savings in place, consider investing in taxable accounts for additional wealth building.
12
Future Family Need Savings
Begin saving for future family-related expenses such as your children’s education (through 529 plans or similar) or elder care for aging parents, if applicable.
13
Special Circumstances Fund
Allocate resources towards anticipated, larger expenses that aren’t regular but can be expected (e.g., new roof, car replacement).
14
Wealth Diversification
Explore other investment opportunities, like real estate or starting a business, especially if these align with your skills and interests.
15
Low-Interest Debt
Address lower-interest debts, such as student loans or a mortgage. While not as critical as high-interest debt, paying these off can free up additional cash flow for other investments.
16
Philanthropy & Legacy
If financially feasible, consider setting aside funds for charitable giving. This can be fulfilling personally and beneficial for tax purposes