4 Simple Numbers You Should Know to Improve your Personal Financial Health

4 Simple Number - Simple Financial Lifestyle

Do you know how financially healthy your finances are? Do you know what numbers can help you determine your financial health?

There are four numbers you can calculate to help you determine your financial health. Similar to a health check knowing these four numbers will help you improve your financial life as well as help you simplify your finances.

So you ask what numbers will help determine my financial health. Here are the four numbers you should monitor regularly to help you simplify your finances no matter how unhealthy they may look at first.

Simple Financial Lifestyle Net Worth

Net Worth

What is my net worth? How do I calculate it?

Your financial net worth is simply your financial assets minus your financial liabilities. Knowing your net worth is an excellent way to measure your financial health. Calculating your net worth will help you track your financial progress from year to year or from month to month.

When you calculate your net worth you want this number to be positive not negative. If you have a negative net worth this is an indication you have more liabilities/debts than assets. So review your liabilities to see what liabilities you can reduce to show a positive net worth. A simple way to improve your net worth is by reducing your debt and accumulating appreciating assets.

Simple Financial Lifestyle Debt to Income

Debt to Income

What is my debt to income and why is it important? Debt to income measures the amount of income you earn versus the amount of debt you have outstanding. It’s another good indicator of your financial health.

You calculate it by totaling up all of your monthly debts then dividing it by your income. Using your net income is a more accurate calculation because it is the actual amount you take home which is available to service your debt.

The lower number means your finances are health and indicates low amounts of debt. A high number will indicate a high level of debt. A healthy debt to income number would be less than 35%. As you reduce your debts this number will be lower.

Simple Financial Lifestyle Score

Credit Score

The next number you should know to help you gauge your financial health is your credit score. Your credit score determines your credit worthiness which is based on your history of managing to payment of your bills in a timely manner.

Credit score can range from low 400s to mid 800s. Here is a break down:

• Excellent credit score 720 and above
• Good credit score 719 to 680
• Average score 679 to 620
• Poor score 619 to 580

Maintaining a good to high credit score has its financial benefits because you will usually receive better interest rate as well as financing terms when you are financing a purchase. This will save you money long term.

When you have a low score you may not be able to obtain financing or offered a higher rate and less favorable terms. Knowing your number helps you during financing process because if you have a good score you can use to your advantage.  If you have a low score, it will not be a surprise if the terms are not favorable.

Obtaining a copy of your credit report along with your credit score is the best way to determine why your score may be low. There are several reason why you may have a low score. When you obtain your report review to make sure the information is accurate and then look to see what can be done to improve your score.

Simple Financial Lifestyle What is your savings percentage

Saving %

Yes you may save some money. But do you know what percentage of your income you actually save annually?

Having a healthy savings has significant benefits and is another indication of your financial health. Calculating your saving percentage is simply dividing your gross income by your savings amount. When calculating your total saving take into consideration the amount you saving for retirement, emergency fund and any other general savings.

Knowing your financial numbers will help you simplify your finances. So take action by determining your:

Net Worth
Debt to Income
Saving Percentage
Credit Score

Setting a goal to improve your just one of these number will help obtain the financial life you desire. Once you work to improve one of your numbers the others are likely to improve as well.

So which number will you work to improve so your finances can become healthier?

Comments

  1. says

    Great article — I’d hazard a guess that the debt-to-income ratio will be a shocker for a lot of people. :-) Using net income, ours is at 15% — all of which is our nearly completed mortgage. (yay!)

  2. says

    Great article and a lot of good tips here. I prefer to look at my debt to income ratio and net worth when it comes to monitoring my finances in the long term. When it comes to my finances in the short term I prefer to look at my net income to see if it’s increasing or declining. BTW – love the graphics.

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