How do you know if your finances are on track?
Are you feeling like you’re just getting by each month, or do you have plenty left over after paying the bills? Understanding your financial health is crucial for achieving your goals and securing your future.
Here at The Gild Group, we believe in empowering you with knowledge to take control of your financial journey. Here are five simple metrics to help you gauge your financial health.
Calculating your net worth is a straightforward way to get a clear picture of your financial health. To do this, add up the value of all your assets (like savings, investments, and property) and then subtract any debts (such as your mortgage, credit card debt, and student loans).
Debts can be classified as non deductible debt (principal Residence, credit card) and investment/business debt (deductible).
In the case of investment debt, you should always be assessing if the value of asset is appreciating over the long term by at least what the tax benefit (deduction) has provided, or you are going backwards. Always remember a tax loss is still a loss, unless, there is capital appreciation to offset it.
While your net worth might fluctuate due to big-ticket purchases or market changes, it should ideally trend upward over time. Knowing this number helps you understand how much debt you can afford, what you can spend, and when you might be able to retire. For personalised advice, a financial advisor can help you assess and improve your net worth.
Another crucial metric is your debt-to-income (DTI) ratio, which shows how much of your income goes towards servicing debts. Calculate your DTI by dividing your total monthly debt payments by your net monthly income. A higher ratio indicates a greater debt burden.
Lenders often consider DTI ratios when assessing borrowers’ creditworthiness. If your ratio is too high, it may signal risk and impact your ability to secure loans. Keeping this ratio in check is essential for maintaining financial stability and creditworthiness.
If you’re looking for a financial adviser near you, The Gild Group can connect you with professionals who can help manage your DTI and other aspects of your personal finance.
Monitoring how much you save each month as a percentage of your income can help you determine if you’re spending responsibly or living beyond your means.
A common guideline is to save 20% of your income. However, this might not be practical for everyone. High-income earners or those aiming for early retirement might save more, while others with tighter budgets might aim for a more modest target.
If you’re struggling to meet your savings goals, consider setting up automatic transfers to your savings account and reviewing your bank statements for unnecessary expenses you can cut. For tailored advice, consulting a financial planner can be invaluable.
Saving regularly contributes to your overall financial security and planning for retirement. By working with a financial adviser, you can develop a robust investment portfolio and an effective investment strategy that aligns with your long-term financial future.
Life is unpredictable, and having an emergency fund (or access to an emergency fund like a home loan redraw) is essential for cushioning financial shocks like job loss or medical emergencies. Aim to save enough to cover three to six months’ worth of living expenses, though having more can provide extra peace of mind.
Keep your emergency fund in a separate, high-interest account to discourage unnecessary withdrawals and ensure it’s available when you truly need it. For more strategic advice on building and managing your emergency fund, financial planning services can provide you with comprehensive wealth solutions.
Proper wealth management, including having an emergency fund, can significantly improve your financial security. A professional advisor can help you plan for the future and maintain good financial health.
For many, superannuation is a primary measure of financial health in retirement. However, the balance alone isn’t enough; consider your age and desired retirement lifestyle. A lower balance is expected early in your career, and market dips may be less concerning compared to someone closer to retirement.
If your super balance isn’t where it should be, consider salary sacrificing or making additional contributions from your take-home pay, which could be tax-deductible. Financial advice from a qualified financial advisor can help optimise your superannuation strategy and ensure a comfortable retirement.
Additionally, considering life insurance and an estate plan can further secure your financial position and provide peace of mind for your loved ones. Managing your super fund effectively is crucial for your financial future, and staying informed about interest rates and market conditions can enhance your investment strategy.
At The Gild Group, we’re here to help you navigate your financial journey with confidence. By keeping an eye on these metrics, you can gain a clearer understanding of your financial health and take proactive steps to achieve your goals.
Ready to take control of your personal wealth? Contact us today for personalised financial advice and wealth solutions tailored to your needs.
Whether you need general advice or specific financial products or services, our experts at Gild Wealth are here to assist you in making sound financial decisions and securing your future.
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