Net worth is helpful in finding out how long you can live without income.
The more you have saved, the less you need to trade time for money.
That means your goal is to have an increasing net worth.
But what if you just pulled together your net worth, and you have a negative net worth?
How to fix negative net worth
If you haven’t yet created your net worth, then visit this post first. When you complete your net worth and if it’s negative, come back here to figure out how to fix your negative net worth.
Be proud that you’ve compiled your net worth. This is a huge step that most people don’t take!
I believe that anyone can go from a negative net worth to a positive net worth over time by rearranging pieces of their financial puzzle.
Yes, some people get over-extended, but it’s rare that they can’t recover in the grand scheme of a lifetime.
The first thing they need to do is simple.
Fix negative net worth by learning how to budget
Download YNAB and start assigning a job to your dollars.
YNAB will help you see your money in a different way. Over time, you’ll learn how to use the app to live within your means and you’ll learn how to manage your money to create excess cash flow.
This is key.
If you overspend every month, then there is no way to get ahead.
Stop overspending on fees to fix negative net worth
Banks don’t need your money so stop giving it to them for free.
As you do weekly reviews of your YNAB, keep an eye out for what you pay in bank fees and in interest.
Eliminating these “donations” are a quick win in creating some excess cash flow.
Bonus tip: you can often call the bank and ask them to reverse late fees or account maintenance fees for the last year.
Evaluate memberships to fix negative net worth
Another great way to use YNAB is to help monitor the payments and frequency of your memberships.
I like to create a membership category in YNAB and list out each one individually so that I know what I’m paying for and none slide through the cracks.
Are there any you can cancel? Or can you change the billing to annual instead of monthly to save 20% on the bill?
Fix negative net worth by building a plan
After you understand your spending habits from YNAB, you can use this to align your habits to your goals.
If they don’t align, then cut the habit.
By cutting your money habits and aligning them with your financial goals, you will begin to create excess cash flow.
What do you do with the excess cash?
Pay student loans? Pay credit cards? Build a plan that aligns with you!
This is where having your net worth handy helps.
Do you have an emergency fund built? If not, start there.
Do you have credit card debt? What are the interest rates on your other debts?
You can try a Ramsey debt snowball if that plan works for you. Or you can pay the high interest debts first.
You are creating a plan that works for you and your unique situation.
Fix negative net worth by getting a financial coach
Sometimes this money stuff is just confusing and overwhelming.
If you fall in this camp, I’m happy to help you cut through the weeds of your financial situation, build a financial plan, and help be your accountability partner.