The Four Financial Metrics to Track

Financial Numbers to Track PDF

People often wonder which personal financial ratios are most important to track. While many matter, four key ratios have the greatest influence on your overall financial health and can reveal other potential areas of concern.

Which financial score should you prioritize first?
Your credit score is crucial for securing lower borrowing rates and saving money. It is also probably the first financial number that you can start working on as soon as you turn 18. Work with your parents or guardians to start establishing ways to build your credit either through a share-secured card or with other options that allow a person to have credit. Of course this means you must use the card correctly though. As you move out on your own, work with apartments to report your rent as another way to build your credit score.

What is the second most important financial metric to begin with?
Without a doubt it is retirement savings. It is generally recommended to allocate at least 10% of gross income toward retirement, assuming employer matching contributions are available. However, without a company match, it may be advisable to contribute at least 15% of gross income to a retirement account. If you don’t have a company match, then you will want to strive to achieve a higher rate on your own. If you can accomplish this early in your career, then later in life you won’t have to increase the amount you are saving. Even as a part-time or gig worker, you can start putting some money back in an IRA account for your retirement. You don’t have to wait for your first full-time job.

Is there one financial number that might be hardest to achieve and maintain?
Building an emergency fund can be challenging, but aim for at least 6 months of expenses, with 9 months as a long-term goal. Recalculate your needs every 3 years, as expenses often change annually. Sometimes, if you are good at paying down debt the need will be less. If you add children or debt, your expenses will increase. At the bare minimum you should strive for 3 months of savings. Also, there might be non-catastrophic emergencies such as unexpected car repairs that might use up some of your emergency funds during the year.

Is there one all-encompassing financial ratio that we should be striving to achieve?
Net worth is one of the most comprehensive ratios for a person. The simplest goal is to multiply your age times your gross income and divide it by 10, this will give a target net worth goal. It is important to remember that most people will start out negative, but as they accumulate appreciating assets, pay off loans, build savings including retirement savings, their net worth is going to continue to grow. You don't need to calculate this number monthly; checking quarterly or annually is enough to track improvement over time. Also, don’t be surprised if your net worth moves up and down. The aim is to track steady growth in line with your rising income and age.