6 Money Moves to Make If Your Net Worth Is Negative

One of the most illustrative financial figures to know is your total net worth. This is the value of all of your cash and assets, minus your debts. For many people, that figure is below zero.

Building a high net worth should be the ultimate goal of anyone seeking financial freedom. If your net worth is less than zero, consider making these moves ASAP. (See also: 10 Ways to Increase Your Net Worth This Year)

1. Reduce your spending

One of the most direct ways to end up with a negative net worth is to spend more than you earn. Cutting unnecessary expenditures is the first step in having a net positive income each month. This can mean some tough choices, like eliminating cable, eating out, and your annual vacation. It may also require more extreme measures, like getting by without a car.

You can help yourself by tracking your spending meticulously in a budget so you know where money is going each month. Even if you think you are already living frugally, there's a chance you can find savings just by taking a closer look.

2. Pay off your high-interest debt

If your net worth is negative, it may be partially due to high interest credit card debt and other loans. Interest can quickly pile up and eventually overwhelm your earnings, putting you in negative net worth territory. Tackling debt starting with the highest interest rate first is called the avalanche method, and this can save you a lot of money on interest payments in the long run. Sometimes, even paying off just one credit card can make a huge difference in your financial situation. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

3. Bring in more income

If you're crumbling under a mountain of debt and you don't have enough income to pay off the debt, you must find a way to bring in more money. Start by searching for higher paying jobs or asking for a raise from your current employer. Consider starting a side hustle, small business, or taking an additional part-time job. It may also be worth exploring income-producing investments, such as dividend stocks or peer-to-peer lending. If you have a maniacal focus on earning more money, you will help yourself move from negative to positive in the net worth department.

4. Invest

Arguably the most important way to build net worth is through investing. If you are able to put even a small amount of your earnings into stocks or index funds that grow, you'll give your financial picture a boost over time. Obviously, investing in the stock market carries risks. But U.S. stocks have consistently risen in value over time, with long-term growth eventually surpassing losses during market crashes. The more you can invest, the better off you'll be, especially if you stay in the market for many years. You won't get rich overnight, but your overall net worth will eventually rise.

5. Set a financial goal

If you had enough money, what would you ultimately want to do with it? Would you want to buy a home? Start a family? Build a hefty retirement account? To increase your net worth, it helps to have a goal to motivate you to save. Ideally, your financial goal should be geared toward building a high net worth, not a one-time purchase like a car. Whether it's a down payment for a home, a comfortable retirement, or saving for college, your dreams can help keep you accountable.

6. Refinance your mortgage

Homeownership can be a great way to build net worth, but it can also be a drain on your finances if you have the wrong kind of mortgage. If your loan term is very long, or if you have a high-interest or interest-only loan, you may not be paying much toward the principal of the loan (or building any equity) for a while. And that could be a serious problem if you're having trouble making payments.

If you find yourself in this situation, you may want to consider refinancing to a shorter term or lower interest rate. There's no sin in borrowing to buy a home, but ideally, homeowners should seek a fixed-rate mortgage with a relatively short loan term: 30 years is standard, but a 15-year mortgage offers you the ability to build equity — and thus your net worth — at a faster pace. Just be sure you can comfortably make the monthly payments.

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6 Money Moves to Make If Your Net Worth Is Negative

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