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Follow these four numbers for financial success in 2015

January is the month that many make their financial resolutions and plans for the year. If you want to sharpen your planning but don’t feel you have the time to devote to a full-fledged planning exercise, then the following four numbers can be your guide to a better 2015 financially.
What is the first number we should be concerned about?
It’s your FICO or credit score.  This number impacts not only your ability to obtain loans, but also the rate you pay on loans. It can impact your insurance costs, ability to get jobs or even your ability to get services such as mobile phones or even apartment rentals.  Paying your bills on time and using credit wisely are the keys to increasing or maintaining your credit score. It all starts with knowing your score and then working to improve or maintain the score.
Experts often suggest that the retirement savings rate is an important number.
This is a very important number to consider as well.  You should be looking for your retirement savings rate to be 10 – 15% of your salary.  Your company 401k is a good place to start building towards that number.  And if your company matches your contribution, you can achieve the higher expectation pretty easily.  It is good to focus on a percentage in this category rather than a dollar amount because the dollar amount can be daunting. Build it over time and see how quickly your retirement savings grow exponentially.
Is there another number related to savings besides retirement planning that should be of concern?
One of the most important numbers to track is how many months of expenses you have saved in your emergency fund.  It is really simple to calculate. Divide your emergency fund balance by your monthly expenses.  You really want this number to be at least 6 months and with children it might need to be stretched to one full year of expenses in your emergency fund that you should have saved.  Even if you have an emergency fund, you should annually confirm your balance covers your current expense needs.  One you have reached the appropriate level, you can turn your savings to other activities such as college funding or other special expense categories.
What is one number people don’t consider but that they should be tracking?
Net worth.  People don’t track this number very often but it is a great number to give perspective over time of how well you are doing financially.  Add up all your assets - cash, savings, investments, personal property and subtract all of your debts, the resulting number is your net worth.  The goal is to grow your net worth over time with savings and reductions in debt. This number helps provide insight if your financial activities are leading towards long term success.  One problem this helps uncover is if you are building assets by increasing your long term debt instead of building net worth.
These four numbers are quick way to have a broad financial plan for 2015.  And for the most part, they are relatively easy to determine and track over time.

Posted: 1/6/2015 with 0 comments

Categories: Money Matters, Planning

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