Ten Personal Financial Numbers You Need to KnowSubmitted by Castlebar Asset Management on March 17th, 2016
We live in a world filled with numbers. It can be tough to figure out the ones that are important and the ones we can forget! Here are TEN numbers you should know about your personal finances.
Income: It may be surprising how many people don’t know how much they make. Paychecks get deposited into our accounts each pay period and most of us leave it at that. Sometimes this is because we earn a base salary and receive bonuses, commission and other compensation that changes each year. Having a handle on your income is important to know for tax reasons, especially as your income moves over $200,000 per year. Knowing what you have earned the past 12 months will give you a good projection of what your family can expect in the current calendar year.
Monthly Expenses: Understanding your expenses means you have a handle on your budget. If you know what you spend on average throughout the year you know what’s left over to do fun stuff with! This will also serve as a reference for how much you should have in a rainy day fund.
Debt to Income: This number goes hand in hand with income and expense. Your debt to income is important particularly if you are looking to upgrade your house or car soon. Lenders use this calculation along with your credit score to judge your credit worthiness. You can find out your debt to income by adding up your monthly debt (Mortgage, Car Payment, Student Loans and other debt payment) and divide it by your gross income. 43% is the max you can have for a qualified mortgage.
Credit Scores: Your credit scores serve two primary functions. One, it allows you to see where you stand in the eyes of a lenders. Two, it allows you to see if there has been any identity fraud. You should check your credit score at least once a year. Many credit card companies’ put this on your statement each month and there are mobile apps which make it easier than ever to track this.
Mortgage Interest Rate: Your mortgage is likely your largest bill you pay each month and a huge chuck of that payment goes toward interest. Knowing your mortgage interest rate could save you lots of money. If you are able to lower your rate by 1% you could save as much as $75,000 on a $300,000 mortgage. Since many of us use autopay this number may not be top of mind but it could save you thousands!
Savings Rate: Paying yourself first is a straight forward way to reach your savings target. Having a handle on how much you save each month as a fixed dollar amount or a percentage of income will help you pay yourself first!
Net Worth: Having a ball park estimate of your net worth is a valuable number to keep track of. Knowing your net worth will allow you to track progress over time and not freak out during volatile times. You don’t have to value your house or other illiquid assets each month but updating your assets and debt periodically will help you see if you are reaching your goals. We offer financial planning tools to make this easy for our clients.
401k Contribution Rate: Are you a 5%, 10% or 15% club member? The percentage you contribute to your 401k is a handy number to know. If you are only contributing enough to get your company’s match this is likely not enough to meet your long term goals. Bump up your contribution by 1% every six months until you max out your contribution.
Investment Allocation: Knowing your basic investment allocation will make you a more informed investor and keep you focused on your goals. A 60% / 40% stock and bond investment mix is an example of what you need to know. This will allow you to monitor your account and know when you need to step in and take action to rebalance.
Company Stock: Often times this is something many of us over look. Knowing how much of your company stock you own as a percentage of your net worth will help identify a concentration risk problem. Owning too much of your company’s stock in your 401k, stock options or in a brokerage account could be a problem below the surface.
Having a grasp on all of these numbers will allow you to make better financial decisions.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.