Be Like Slim

Mexican telecomm Mogul Carlos Slim Helu added $19 billion to his fortune in 2006. His gain, placing him at No. 3 on the billionaire’s list with $49 billion, was the largest one-year gain in a decade.

While not all of us can increase our net worth by $19 billion in 1 year, we might be able to grow it by 38% (19 billion is about 38% of 49 billion).

If you’re $14,000 in debt and have $1,200 in your bank account. Your net worth is a negative $12,800. If you cut your debt to $10,000 and increase your savings to $2,100 your net worth is now a negative $7,900 which is means you increased your net worth by 38%!

Suppose you have $40,000 in the bank, no credit card debt and a rental property you bought with 10% down worth $200,000. (yes, its possible to buy houses cheaply in several parts of the country). Your net worth is $60,000. If you were lucky enough for your house to appreciate by 15% (according to a previous post on Real Estate Research, thats 50% less than the median appreciation in Salt Lake City in 2006), thats a $30,000 increase in its value! So now your net worth is $90,000 or a stunning50% more than it was last year!

What if you had 5 homes like that?

With sufficient leverage its possible to substantially increase your gains but leverage cuts both ways. In a down market where the market drops 10%, your 10% down payment would sudden evaporate and your net worth would now only be $40,000. Again a drop of 50%. Did you notice that it drops quicker than than it increases?

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