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Four numbers that matter the most financially

If you want to know how you are doing financially from a big picture perspective there are only four numbers that you need to know to gauge your financial situation.  These four numbers provide a snapshot of where you are today and also provide insights on how well you are doing over time.
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. 
What is a good score and how can we get to that score?
A score over 700 is good and if you can get above 750 that means you are going to usually get the best rates available.  Improve your score by paying your bills on time and using credit wisely which means not utilizing the full limit on your credit cards and not opening too many credit cards.
For long term financial wellness, what is an important number to track?
You should know your retirement savings rate.  The goal is to be saving at least 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. 
If we are underperforming in our retirement savings efforts how can we get closer?
It is good to focus on a percentage in this category rather than a dollar amount because the dollar amount can be daunting. Work on increasing it just 1% per year and you will quickly achieve your goal. And make sure retirement savings is a priority over saving for college - you can borrow to pay for college but you can’t borrow to pay for your retirement.
Are there any short term savings numbers to be tracking?
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. 
What should be our goal for this number?
You really want this number to be at least 6 months and the ultimate goal is 12 months.  Once 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. 

Posted: 1/26/2017 with 2 comments

Categories: Financial, Money, Money Matters, Planning, Retirement, Saving

Martha - Very good point that these numbers are designed for pre-retirees. For those in retirement net worth might actually begin to decline. What is important to consider the rate of reduction of retirement funds compared to expected life expectancy. This number will let you know if you are spending too much of your investment or what rate of withdrawal makes sense for your situation. Depending upon the outcome of this calculation there might be additional financial moves that will need to be made to make sure that your funds last as long as you need them to last.
7/12/2018 8:35:54 AM

These numbers are fine for someone who is still in the workforce. What about folks who have retired and are no longer saving for retirement but are drawing upon the assets that have been saved. What is a good way to measure the financial well being of people in this category?
7/2/2018 9:53:45 PM

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