You can’t compare yourself to others, because you never know what’s going on behind the scenes. As a financial planner, I have the privilege of taking a good hard look at people’s finances. But what exactly should you measure? I asked for some input from a couple of financial experts and put together a list of financial measurements to track every year.
Your net worth
A one-page net-worth assessment. Do this every year, so you can see your progress year over year. Add details on your credit cards and loans, including your interest rates and minimum monthly payments. This way, you can track progress on reducing balances and lowering interest rates.
Your credit score
An excellent credit score can make a huge difference in your finances. Someone with an excellent credit score will save and earn over a million dollars more over their lifetime than someone with a poor credit score.
The number of months your emergency fund will carry you
Many financial planners recommend that you have three to six months’ worth of expenses in a liquid account. Shoot for six months of net expenses in an accessible account. At bare minimum, you want one month of expenses available.
Your retirement saving percentage
Millionaires on average invest at least 20% of their income. What percentage of your salary are you saving for retirement? Your matching contribution from your employer counts toward that percentage. Shoot for a 20% overall savings rate — 10% in your retirement account, 5% in your emergency fund, and 5% for other goals.
Your debt-to-income ratio
Lenders use this number to determine whether you are a good credit risk. To calculate your debt-to-income ratio, take the total of your monthly debt payments, such as car loan payments, minimum monthly credit card payments, and student loan payments, and divide it by your gross monthly income.
Your giving percentage
Personally, I believe a true measure of personal financial security is the ability to give. When you are financially secure, you can feel comfortable focusing on helping others. Researchers have found that giving to others makes us happier than spending money on ourselves.
As you improve and grow your wealth, it will be rewarding to look back and see how far you’ve come.