7 Key Financial Metrics Every Family Should Monitor
We all aspire to have a healthy financial outlook, but what exactly does that mean? How can you get your financial goals “in shape,” and in what ways should that be measured?
If you are ready to whip your financial health into tip-top shape, I can help. Let’s look at some ways you can track your financial health!
As a financial professional, I am always asked what solid finances look like, and of course, that answer can vary from person to person and family to family. But these seven metrics are very helpful in helping any household track to help monitor, obtain, and maintain a healthy financial future. Learning these key metrics is all a part of advancing your financial literacy.
Monthly Income
Let’s start with the basics. A solid baseline understanding of your monthly income is crucial to understand your finances and what realistic goals you can hope to shoot for in the future.
Your household income is the total take-home income of every contributing household member’s job(s) and side hustle(s). This number should be clear in your home so each adult in the family understands how the finances come in and how they will go out. Discussing what each member will contribute is a great place to start. Once you know your monthly household income, you can begin to plan accordingly.
2. Monthly Expenses
Another building block of finance includes the monthly expenses you will encounter as a household - the money going “out,” which includes both essential and non-essential items. For example, rent or mortgage is likely one of your largest monthly expenses, along with other essential utilities such as electricity, water, Internet, and phones. More variable expenses will include groceries, pet needs, and consumables.
These costs may vary month to month (if based on usage), so you will want to calculate an average use each month. This category should also include expenses like family outings and date nights. These may be “nonessential” in technical terms, but if it is a recurring expense you frequently have each month, now is a good time to include them in your budget.
3. Savings Rate
Another great way to track how things are financially flowing is to watch your savings and retirement accounts each month. How much are you setting aside to save or invest?
It’s wise to take some of your retirement savings out of your paycheck and put directly into your 403(b) or 401(k) so that the money never hits your checking account, where you could be tempted to spend it. You can also set up a direct deposit and break up your paycheck into multiple accounts - again, if you never see it in your main account, you’re less likely to spend it!
Your total monthly savings should be calculated in the previously mentioned “monthly expense” category, but watching how you save is a great way to build up your nest egg, add to an emergency fund, and ensure a solid financial growth point.
4. Size of Emergency Fund
An emergency fund is one you build to cover any unexpected life events. What if you needed a new roof after a summer storm? What if someone in your family had a medical emergency? What if your car was in an accident, and you lost your only source of transportation? What if you lost your job?
These are instances where a well-stocked emergency fund will come in handy. These funds are set aside and reserved only for emergencies. We recommend having three to six months of living expenses aside for an emergency.
5. Credit Score
Another figure to keep an eye on is your credit score.
Your credit score helps lenders determine the risk they may take on lending you funds. If you have a high credit score, you are a lower risk to lenders, and they trust you with higher loan amounts and lower interest rates. However, if your credit is down, you may not be able to obtain loans at all.
Cell phone contracts, appliance purchases, and store credit cards can all depend on your score. Watching for this to be in a healthy range contributes to your overall financial health, too. This often goes hand-in-hand with monitoring your identity for signs of theft.
6. Retirement Age
One of the first questions I get when I have an initial consultation or annual review with a client is, “At what age can I retire?”
While everyone wants to enjoy life in the here and now (which is why smart household budgeting strategies are so important!), many of us also look forward to the day when we don’t need to work as much. Your target retirement age is a great goal for you and your partner to discuss with a financial professional.
7. Insurance Coverage
The last area to keep an eye on is your insurance portfolio. As your finances change, so should your insurance coverage. If you have a bigger house, you must have more insurance to replace it should anything happen. The same applies to your health, life, auto, and supplemental insurance. The more you need, the more coverage you will want to ensure you are protected no matter life’s ups and downs. An annual review with your insurance agent is another smart move!
While you could track many more metrics when considering your overall financial health, by starting with a solid grasp of these seven, you will be well on your way to understanding your finances! Reach out to my office anytime if you’d like help with one of these areas of financial health.
