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The Top 6 Numbers You Need to Know to Gain Confidence in Your Finances

I meet with people every day who are book smart, street smart, you name it.  That being said, I’m still amazed that no matter how well educated or independent they may be, they are often times naïve when it comes to one very important area of their lives.  The details of their finances tend to get over looked.  While they could tell me exactly how many inches of snow fell in their town during the last storm or who won Best Picture at the Oscars, they don’t know specifics when we get into the details of their personal financial numbers.

Why?  I’ve asked myself and my clients this many times.  Some say it’s because they don’t want to know (the “ignorance is bliss” strategy), but most say they don’t even know where to start.  Financial literacy is something that typically isn’t taught in schools.  And because money can be difficult to discuss with friends and family, people often enter their adult years not knowing the right questions to ask and knowing even less about where to get answers.

From this day forward – that will not be you!  Read on to learn six of the most important numbers to know off the top of your head regarding YOUR money.  Remember, Knowledge is Power!  The more you know the better position you’ll be in to make confident, educated decisions.

  1. Net Worth – Simply put, your net worth is what you own minus what you owe. It’s important because it gives you a baseline to start with and the ability to make tangible goals. For example, if you say, I want to grow my net worth by 10% per year, you’ll need to know what it is today in order to see if you’re on track with your desired growth.  It’s also important because it puts your finances in perspective.  You could have a large house, nice car, and an impressive social life, but if your mortgage is outrageous, your car payments are unmanageable and your credit card bills are making it hard for you to save, you need to take a hard look at the numbers on both sides of your balance sheet.  Net worth allows you to see progress and equity.
  1. Assets – What you own. This is made up of things like your savings accounts, retirement accounts, cars, houses, investment accounts, equity in a business, personal belongings of value, etc. Take the value of all of these and add them up.  That equals your total assets.
  1. Liabilities – What you owe. This can be your mortgage, student loan debt, credit card balances, business loans, and so on. Tally these up – not fun, right?  It may feel painful, but it’s necessary.  You can’t improve on something if you don’t know where you’re starting from.  Also, remember that not all debt is “bad.”  Debt is often times necessary.  Not everyone has the financial means to pay for higher education or a home with cash.  So taking out loans becomes the only option in order to make these great things happen. Also, know your interest rates.  Understanding the impact of interest over the lifetime of the loan will help you decide the most efficient way to pay down the debt (or work with an advisor to decide on a strategy).
  1. Credit Score – Check it at least once per year. This is important for a few reasons. Your credit score is a reflection of your past financial decisions like the dedication to paying bills on time and how much debt you have in your name.  It also shows how easy it will be for you to make future financial decisions like purchasing a home or taking out a business loan.  Banks want to see a high credit score (700 or above) to give out favorable rates, which can add up to saving hundreds or even thousands in interest over the life time of your loan, depending on the size of the initial note. You also want to look at your credit report to make sure nothing seems out of place.  It’s a great way to discover fraudulent accounts in your name or pick up on mistakes that could have been made by companies with which you have loans.
  1. Rate of Savings – My clients work to get their savings rates up to 15-20% of their annual income. To find your rate of savings, divide how much you are saving per year by your income. People often ask if they should calculate their savings based on gross (total) or net (gross minus taxes) because it can be a big difference depending on your tax bracket.  For the sake of this conversation we will stick with gross because we aren’t getting into tax strategies at the moment.

Example: $100,000 income x 15% = $15,000/year of annual savings

$100,000 income x 20% = $20,000/year of annual savings

Your rate of savings = $Gross income/Dollars saved per year

Seems like a lot? That’s the point!  I want my clients to be amazing savers.  I help them find creative ways to save more money per year if they are struggling to do so on their own.

  1. Rate of Return – Knowing the rate of return you are getting in your retirement accounts and non-qualified investment accounts is a must. This does not mean you need to know how the stock market is performing on a daily basis. It does mean that you should be looking at your statements quarterly to see how your accounts are performing.  Have you heard the market “is doing great” but notice your account has gone down 5%?  If so, call your advisor and ask why.  There should be very clear reason, but if the answer is that the account hasn’t been reviewed in several years and/or hasn’t been reallocated to match your current risk tolerance or time horizon, then your lack of being proactive just cost you, literally.  There’s no way to know exactly what the market is going to do, but knowing how your accounts have performed in the past will allow you (and hopefully your trusted advisor) to make sound investment decisions going forward.  If you don’t have someone you work with, then it’s time to find someone you trust to help you.

Knowing your numbers is a game changer.  It moves you from being reactive to proactive.  It puts you in the power position in your own financial life and allows you to make more confident decisions going forward.  Even if you don’t love what your numbers tell you at the moment, own them.  They are a result of your past financial decisions and now that you know them, set goals and improve them.

Thanks for reading!


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The opinions voiced in this article are for general information only.  They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by LPL Financial. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.