6 Personal Finance Metrics You Can’t Afford Not to Track

FINANCE

You need a step-by-step plan to get there, incremental goals to achieve, and metrics to track to see if you’re making progress. How many days are you running per week? What’s your time per mile? What pace should you aim for so you don’t tire too quickly?

If you have a “normal” job, you get a steady paycheck and this is pretty easy to calculate. If you’re an entrepreneur, contractor, or consultant this might be a little harder to figure out.

Personal Finance Metric #1: Income

One of the easiest ways to decrease your expenses is just to start tracking them and see where your money is going. It’s almost magical how just taking one second to be aware of what you’re spending your money on will prevent a lot of frivolous spending.

Personal Finance Metric #2: Expense

It’s a simple ratio to show you how much of your income is left over after paying the bills. For example, if you bring in $5000 per month and spend an average of $3500 on housing, transportation, food, healthcare, taxes, etc. then your savings rate would be (5000 – 3500) / (5000) = 30%.

Personal Finance Metric #3: Savings Rate

If there was only one personal finance metric I could track, I would choose net worth above all others. It elegantly combines all the other metrics into one easy way to get a snapshot of your financial progress.

Personal Finance Metric #4: Net Worth

If we take the typical advice from a financial adviser, Suzy Saver from our example above could be collecting 4% of her $1M (or $40,000) portfolio per year in retirement without ever drawing down her nest egg.

Personal Finance Metric #5: Passive Income

If you’ve diligently saved and invested over the years, one thing you really can’t control is the market (how I wish you could). One year, your portfolio may be up 8% and the next year down by 3%. While over the long term, the stock market should return 8-10% per year, it’s a bumpy ride.

Personal Finance Metric #6: Investment Fee

However, there is one personal finance metric related to your investments you CAN control, and that is your investment fees – whether that is a fee to a financial advisor, or expense ratios for a mutual fund, or even maintenance fees to participate in a certain type of plan such as an IRA or 401(k).

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