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Know Your Financial Wellness Numbers

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Know Your Financial Wellness NumbersFinancial wellness starts with knowing where you stand with your finances. We call these your financial vitals. These are 5 of the most important financial health indicators.

Net Worth

Your net worth is by far the most important financial number, but also the most overlooked. It measures your wealth. The net worth number takes into account what’s left after accounting for what you OWN minus what you OWE.

Calculate your net worth number by doing the following:

  1. List your assets (what you own), estimate the value of each, and add up the total. These may include money in bank accounts, investments, the value of your car, the market value of a home, retirement accounts, etc.
  2. List your liabilities (what you owe) and add up the total. These may include your loans, credit card balances, mortgage, etc.
  3. Subtract what you own with what you owe:

Net worth = Assets (what you own) – Liabilities (what you owe)

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Income

Your income is the money you make through your salary at work, other jobs, or investment returns. We often focus only on the income from wages, but it’s quite important to know your total income from all sources. This can help you create a multiple income source strategy to be less reliant on one single stream.

  1. List all your income sources such as wages from work, interest income savings, dividend income from investments, capital gains from stock trading, rental income, side gigs, and more.

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Net Cash Flow

Your cash flow number helps determine if you can cover your expenses with the income you receive. It’s calculated on a monthly basis and can help you see if you are living within, below, or above your means.

If your net cash flow is positive, then you have extra money to put towards your financial goals. If your net cash flow is negative, it may be time to cut back on expenses and increase income.

Total Monthly Net Income – Total Monthly Expenses = Net Cash Flow

  1. Add the monthly income from all sources (before taxes and deductions)
  2. Add all monthly expenses (rent/mortgage, utilities, subscriptions, loan payments, groceries, etc)
  3. Subtract total monthly net income with the total monthly expenses to get your Net Cash Flow

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Credit score

The two most well-known credit scores are FICO and VantageScore. There are many different credit score algorithms and organizations use a variation of these algorithms to calculate a score. In fact, when you get your credit score you’ll often find scores vary greatly.

Most important to know about your credit score is where you fall in the credit score range. This determines if you’re a prime candidate for the best rates and terms.

Get your free credit scores by the following methods:

  1. Ask your bank or credit union if they offer free credit scores
  2. Ask your existing credit card company about accessing free credit score
  3. Use one of the many free credit score apps available

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Debt-to-income

Your debt-to-income (DTI) can show if you’re over-leveraged meaning your income is heavily allocated towards loans. The DTI ratio is used by lenders to determine whether or not you’re approved for loans like mortgages.

Most importantly, a high DTI percentage can mean the inability to cover debt or loan obligations in the future. You want to keep an eye for growing loan payment amounts and stagnant income growth.

Total monthly debt payments / Total gross monthly income = Debt-to-Income Ratio

  1. Add your monthly bills (mortgage payments; student, auto, or other fixed monthly payments; credit card minimum monthly payments; other debts)
  2. Divide the total of your monthly loan payments by your monthly gross income (income before taxes).
  3. The result is a percentage called your DTI ratio.

The lower your DTI the less risky to lenders and indication of better financial standing.

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Jason Vitug

Jason is the founder of phroogal, creator of the award winning project Road to Financial Wellness, and author of the bestseller and New York Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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