7 Financial Numbers You Need to Know

If you’re new to financial planning, it can feel a little overwhelming at first. Where do I start? What numbers should I really be looking at, and how do I get them to where they need to be?

To simplify what can be a complex process and help you get started with your plan, here is a list of 7 important financial numbers you should know.

#1: Savings Rate

The first and arguably most important financial number you should know is your savings rate. Your savings rate is the amount of money you’re saving compared to the amount of money you're earning. It determines whether you'll be financially independent when you want to be and if you’ll be able to retire in the future; put simply, it’s the number that determines whether you’re doing financially well or not.

To calculate your savings rate, add all of your annual savings - including your retirement plan contributions - and divide them by your total gross annual income (before taxes and deductions).

We recommend a savings rate of at least somewhere between 10 to 20%, but we understand that that's not always an easy number to get to. If you’re not there yet, that’s okay. The idea is to start small and gradually increase your savings rate over time.

#2: Debt-to-Income Ratio

The second figure we want to look at is your debt-to-income ratio. This number can determine if you have a healthy amount of debt or if you have too much debt and should be focused on reducing it. 

The primary factor considered in your debt-to-income ratio is your long-term debt. This includes anything you have to pay for over a year, such as mortgages, student loans and car loans. But don't forget to include short-term debt such as credit card payments.

To get your debt-to-income ratio, take your monthly debt and divide it by your monthly income before taxes and deductions. Once you know your debt-to-income ratio, you can decide whether to prioritize paying off debt versus saving and determine whether you’re in a position to take out any additional loans.

#3: Net Worth

The third number you should know is your net worth. Your net worth is the one financial number that sums up your whole financial life. This can sound scary, but don’t let it intimidate you. To calculate your net worth, simply take all of your assets - savings, retirement accounts, real estate - minus your liabilities - debt, recurring expenses, mortgages, and any other loans.

It’s not uncommon, especially early in your career, for your net worth to be negative. If it is - not to worry. Again, the goal is to gradually increase your net worth over time by owning more and owing less. 

#4: Emergency Fund

The next number is the one that no one likes to think about, but everyone should have - your emergency fund. Whether you prefer to call it your emergency fund, cash reserve, or rainy day fund, your emergency fund is there for you when life happens - as it undoubtedly will.

To figure out how much you should have saved, add up your essential monthly expenses and multiply this number by 1, 3, or 6 months depending on your situation. We recommend at least 3 months of saving for single individuals and married individuals whose spouse is also earning. For people who have children or who are married with only one spouse earning, we recommend 6 month’s worth of savings. 

#5: Cash Flow

Another important number you need to know is your monthly spending. Your monthly spending is the foundation of a good financial plan and helps you calculate all the numbers above. If you don't know what you're spending, it's hard to build financial goals and achieve them.

Whether you use excel spreadsheets or a budgeting software, calculating your true monthly spending can be a difficult task. Since it’s such an important number, we believe tracking spending should be easy, automated, and low-maintenance. Which is why we’ve created a Spending Analysis to help track and manage your spending. 

Our Spending Analysis categorizes data from your linked bank accounts and credit cards and displays your top spending categories month-over-month to give you a clear look at where you’re spending the most and help you find areas where you could be cutting back. 

#6: Retirement Savings

Next, you need to know how much you have saved for retirement and evaluate any other potential income sources. Are you saving enough to achieve your income goals for retirement? This is an essential question to answer regardless of how near or far your ideal financial independence day may seem. Taking time to track your retirement saving progress will increase your likelihood of achieving your goals. 

Unfortunately, less than half of all workers in the US actually take the time to run a basic retirement calculation at least once per year. This needs to change! That’s because a little awareness can go a long way to increase your own sense of confidence that you are taking steps to secure your own retirement. 

Simply taking a few minutes to assess your retirement savings progress each year has been linked with improved retirement confidence and overall financial wellness. If you haven’t reviewed your retirement goal recently, log into BrightPlan or schedule a financial planner call to better understand the steps you need to take.

#7: Your Financial Wellness Score

Finally, assessing your overall financial health is a great way to turn financial awareness into an ongoing action plan you can track regularly. The BrightPlan Financial Wellness Score™ is a snapshot of your financial well-being. BrightPlan calculates your score by evaluating your financial wellness across key factors that impact your financial situation, including your savings rate, retirement readiness, emergency savings, and preparation for the future. 

Your score also includes guidance on the next steps to take in priority order. While there are many ways to boost your score, the most important next steps for your financial wellness come first. You can review the BrightPlan Financial Wellness Score™ by signing into your secure account. If you are accessing BrightPlan outside of the app, this Financial Health Check will provide you with another way to assess your overall financial health and wellbeing.

Tracking your 7 Financial Numbers

Now that you know what the top 7 financial numbers are you can begin tracking them and aligning them with your financial goals. Whether you’re looking to increase your net worth or build your emergency fund, BrightPlan has a range of features that can help you stay on track. To learn more about how to use BrightPlan to get your important financial numbers on track, check out the BrightPlan Academy. 

Still have questions? On a one-hour call, our team of financial advisors can take a closer look at these 7 numbers with you and give you specific advice on how to align them with your plan. To schedule your call, simply click here or sign in to BrightPlan and click "Plan" > "Financial Planner".