Your net worth may not be something you think about very often. But if your goal is to retire securely, it’s important to work on growing not just your 401(k) or IRA balance, but your net worth.

A 2022 Aspen Institute report found that about 13 million Americans, or 10.4% of U.S. households, had a negative net worth. Clearly, these statistics are a bit dated, but they’re based on an analysis of Federal Reserve data that only comes out every few years.

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If you want to avoid ending up with a negative worth, there’s a simple thing to do.

High levels of debt could wreck your finances

Your net worth is measured as your total assets minus your debts. If you have a $200,000 balance in your 401(k) plan and own a home worth $600,000, you have $800,000 in assets. If you also owe $500,000 on your mortgage, that gets subtracted to give you a net worth of $300,000.

The problem, though, is that some Americans end up with a negative net worth by taking on too much debt. And often, people take on debt with the assumption that they’ll pay it off eventually.

But sometimes, “eventually” ends up being never. Meanwhile, people with high levels of debt lose lots of money to interest through the years — money that could go toward retirement savings or other goals instead.

Borrow carefully and aim to keep your debt to a minimum

It’s not necessarily possible to avoid debt completely. If you want to own a home, you’ll probably need a mortgage to finance one. And you may need to finance vehicle purchases through the years, too.

The key, therefore, is to try to minimize your debt as much as you can. That means:

• Not buying a home at the very top of your price range
• Choosing modest vehicles and skipping some of the add-on features that force you to borrow more
• Avoiding credit card balances as much as possible
• Shopping carefully for personal loans so you’re able to lock in lower interest rates

The latter is important, because credit cards are notorious for charging large amounts of interest and compounding that interest daily. This means that for every day you don’t pay off your balance in full, more interest accrues against you.

There’s no need to obsess over your net worth. But it’s also important to avoid ending up with a negative net worth. Making smart choices with the debt you take on could be your ticket to avoiding that unwanted scenario.

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