In a world where financial stability is more critical than ever, understanding your personal finance metrics is the first step towards long-term success. Many individuals struggle to measure their financial health effectively, leaving them uncertain about where they stand or how to improve.
Personal finance metrics offer clear insights into your financial well-being, helping you identify strengths, address weaknesses, and plan for a secure future. Start your journey to financial empowerment today by mastering these simple yet powerful metrics.
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 ten 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). Consider your total liabilities and total assets when assessing your balance sheet.
In the case of investment debt, always assess if the asset’s value is appreciating over the long term by at least what the tax benefit (deduction) has provided, or if you are going backwards. 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 perso
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. Consider also reviewing your debt-to-equity ratio for a broader understanding of your financial metrics.
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 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.
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.
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 adviser can help optimise your superannuation strategy and ensure a comfortable 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 adviser can help optimise your superannuation strategy and ensure a comfortable retirement.
The 10/10/10 rule can help you make money decisions, big and small. Ask yourself how you will feel about a purchase 10 minutes, 10 months, and 10 years after making it. This can help you weigh the long-term impacts of your financial choices.
Use the rule of 72 to estimate how long it will take for your investment to double. Divide 72 by your expected annual return to get the number of years needed. This simple calculation can help you understand the potential growth of your investments
Calculate your financial freedom number by multiplying your annual expenses by 25. This gives you an idea of how much you need to save to withdraw 4% annually without depleting your savings.
Compare your total monthly income to your expenses and savings to calculate your cash flow ratio. This metric helps you understand how much of your income is spent versus saved, guiding you in adjusting your spending habits.
Determine what percentage of your income is saved each month. This ratio helps you evaluate your savings habits and make necessary adjustments to meet your financial goals.
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.
You’ve created wealth… have you made sure you’ve protected it and put it in place where you want it to go if something unexpected happens to you? Speak to our Gild Legal team.
