10 Numbers You Should Know to Boost Your Finance Game

November 1, 2022

Most people could not tell me exactly what their income and expenses are. I mean, they sort of could. But it's never exactly correct. When it comes to managing your money, this is only the tip of the iceberg. In fact, if you want any chance of building wealth and achieving any form of financial independence, knowing the right numbers is vital to building wealth. For starters get used to these ten:

Gross Income

This is your income before taxes are taken out. You need this number to understand where you fall concerning contribution limits, tax qualifications, tax brackets, and other areas. It's the start of knowing where your main source of personal revenue comes in.

Essential Expenses

If you lost your income for 3 months, what expenses do you absolutely need to survive? Those expenses are your essential expenses. They are the priority expenses that need to be paid like food, water, rent, and other bills just to get through the day. Understanding this number will help you identify your floor with your overall expenses.

Discretionary Expenses

Any expenses outside essentials are simply extra. These expenses are based on your "wants" rather than "needs". Things like the gym or Netflix are nice, but you don't need them to survive another day. These are usually the most controllable expenses relative to essential ones.

Marginal Tax Rate

This is where your highest level of income is taxed. Understanding this helps you identify how additional income will be taxed. Because taxes work on a "laddered" approach, this rate shows the top rate. But the next rate helps you identify what you actually pay in taxes.

Effective Tax Rate

This rate shows you what your overall tax rate looks like once you factor every tax bracket together. Understanding this number helps you determine what your after-tax income looks like once all the taxes are taken out. After that, you've identified your net income.

Savings Rate

How much are you setting aside for your future? Knowing this number is a must when knowing how much you plan on investing. How much are you committing relative to your income? This number altogether is what gets used to build your financial independence.

Net Worth

This is a simple equation: assets minus liabilities. Assets are what you own. Liabilities are what you owe. Using this metric alone will allow you to effectively keep track of your wealth over time with everything in your household.

Debt / Income Ratio

Are you taking on too much debt? This simple ratio will tell you based on how much debt you are paying relative to what you are bringing in per month. On average, 35%-43%+ would be considered higher than normal. Less than that is considered manageable. Adjust your plan so your debt doesn't outweigh what you bring to the bank.

Time Horizon

One of the best questions you should ask about your money is: "When do I need my money?" Doing so will help you pinpoint how your funds should be invested and what types of vehicles should hold them. This helps improve efficiency for growth and could minimize potential costs.

Risk Tolerance Score

How should you be invested? Your risk appetite will be a factor alongside your horizon. Risk takers should have a higher aggressive score while risk-averse ones should have a lower conservative score. You can never truly be "risk-free," but you can transfer it!

With a solid financial plan, laying out these numbers will clarify how to manage your money.

Need help identifying yours? Start here!

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