Welcome to my “Ask A CPA” feature. This is where the nerdy CPA in me comes out and shares some actionable and practical personal finance, business and accounting tools and tips for working women. Got any business or accounting questions? Send them my way at corporate@thecorporatesister.com.
One of the most prized pieces of advice I’ve ever received is to strive for financial stability and increase as a working woman, regardless of the path I may choose in life. However, it wasn’t until many years later that I truly started considering the importance of this one piece of counsel.
This also seems to be the case for many women, as research data from Earnest shows men’s net worth is nearly double that of women’s. This has given rise to the gender wealth gap, which turns out to be even worse when considering individual racial lines. According to the Center of Global Policy Solutions’ October 2014 Fact Sheet, income inequality, unemployment, retirement security, compounded by the effects of motherhood, are among the factors contributing to this wealth gap. As such, this rampant inequality creates a gap not just among genders, but also in the wealth potential of entire families, communities, countries and by extension the world we live in. Hence the importance of solving a problem that ultimately impacts all of us by helping women in general, and minority women in particular, achieve financial stability and growth by providing them with tools and tips to increase their net worth.
The concept of net worth is based on the difference between what we, as individuals own, also known as our assets, and what we owe, which are our debts or liabilities. Assets may consist of homes, personal possessions, vehicles, investments. Debts or liabilities may be personal loans, mortgages, credit card loans, and other obligations. The difference between the two results in individuals’ net worth. Tracking one’s net worth over time is an effective way to ensure being on track financially, but also improving one’s financial position by increasing one’s net worth.
While many increasing one’s net worth is challenging at best, and nearly impossible at worst, especially as life’s obligations and commitments pile up with time, it is actually pretty feasible to do so. If you’re facing this challenge today, and are not sure where to start, here are 2 simple ways to begin the process:
1- Consider your assets:
- Track your existing assets: Do you really know what you own? When was the last time you made an inventory of your assets? If you have not done it in a while, or have never done it at all, it may be time to start.
- Increase your salary: Can you ask for a raise? Are you able to make a calculated professional move that can result in a greater pay? If so, increasing your salary can greatly contribute to boosting your assets and net worth.
- Diversify your income: Have you been considering adding additional streams of income to your revenue? Are you toying with this dream side hustle you’ve been thinking of for quite some time? How about that business you’ve been wanting to start? Diversifying and multiplying your streams of income is one of the most effective strategies to add a boost to your assets.
- Invest in assets that appreciate in value over time: If you’ve been dabbling into investing into stocks, bonds, life insurance, or any other investment vehicle, you are on the right path. Investing in assets that grow in value over time, as opposed to assets that lose value over time such as cars, clothing and other personal possessions, can work wonders for your net worth.
2- What about that debt?
The second part of any strategy to increase your net worth begins with taking a good, hard look at your debts. That’s the part that’s dreaded by most, especially women, who, according to 2021 data by Educationdata.org, unfortunately hold 58% of all student loan debt in the U.S. In addition, this study by the Federal Reserve demonstrates a gender-related credit score gap showing lower credit scores for single women as opposed to their male counterparts, which also accounts for a heavier credit use by single women than single men. Furthermore, the more acute financial effects of divorce on women only worsens these already bleak findings. Hence the importance of making debt handling a priority for women.
- Pay off the debt: Can you redirect some of your savings towards paying off debt? Where can you trim your expenses to allocate more funds towards reducing your credit card debt and other liabilities? Can you afford an extra mortgage payment every year? Focusing efforts and finances to paying off debt can go a long way towards increasing your net worth, in addition to eliminating the pressure and stress that comes with it.
- Resist the temptation to acquire more debt: A large majority of our environment is geared towards extreme consumerism. From ads on our mobile phones, to open publicity on social media, not to mention the constant pressure to upgrade our products and services, we are most often exposed to the temptation to use credit. The more we can resist this temptation, the less debt we acquire, and the more we can strengthen our net worth.
Are you working at increasing your net worth? Please email us at corporate@thecorporatesister.com and share your insights and stories with us.
Take care,
The Corporate Sis.
