The silver numbers you need to know
Your doctor needs to know certain numbers to judge your physical health, such as your weight, blood pressure, and cholesterol levels.
Likewise, there are some numbers you need to know to monitor your own financial health, including:
INCOME AFTER TAX AND “ ESSENTIAL ” EXPENSES
Your after-tax income is your gross income less any taxes you pay (federal, state, and local income taxes, plus Social Security and Medicare taxes). If you receive a regular paycheck, you can use your last pay stub to calculate this number. Otherwise, check your last tax return.
Divide your after-tax income by the number of hours you worked to earn it. This gives you a rough idea of how long you are trading when buying something. For example, if you make $ 20 an hour after tax and something costs $ 100, you have to work five hours to afford it. Knowing this number can help you make more conscious financial decisions.
Your after-tax income is also the basis of the 50/30/20 budget, a spending plan that helps you balance your current expenses, debt, and savings. This budget suggests limiting your essential or much-needed expenses – housing, utilities, transportation, food, insurance, minimum loan payments, and child care needed to work – to 50 percent of after-tax income. Cravings, such as vacations and dining out, account for 30%. That leaves 20% for savings and additional debt repayments.
Capping the must-haves can help you survive a job loss or other financial setback. You can also use the limits to determine if you can afford a new loan repayment. If paying pushes your essentials above 50%, the answer may be no.
INCOME FOR LIFE AND NET VALUE
You can access your Social Security statement, including your lifetime income history, by registering at socialsecurity.gov/myaccount. Add up your annual earnings, as well as any other income you have received such as donations, inheritances, investment income, pensions, under the table earnings, or government benefits. (The estimates are good.)
Now calculate your equity by subtracting what you owe (your debts, including loans, credit card debt, and mortgages) from what you own (your assets, like your home, retirement accounts, investments and your savings). Compare your net worth to your lifetime income to see what you’ve done with the money in your hands.
There is no objective scoring system. Just like hourly wages, this exercise aims to make you more aware of what you are doing with your money. If you think you should have more to show for the money you received, try to save more of your income.
FULL RETIREMENT AGE AND EXPECTED SOCIAL SECURITY BENEFITS
The age of your full retirement is the age at which you are entitled to 100% of the social security benefits you have earned. If you apply for benefits before this age, your checks will be permanently reduced. If you delay your application until full retirement age, you may be eligible for deferred retirement credits that increase your benefit by 8% each year until age 70, when benefits peak.
The full retirement age has gradually increased. For those born from 1943 to 1954, the full retirement age was 66. Then, the full retirement age increases by two months each year: it is 66 years and two months for people born in 1955; 66 and four months for people born in 1956, etc. The full retirement age is 67 for people born in 1960 and later.
To better plan for your retirement, you need to have an idea of what to expect from Social Security. You will find the estimated benefits in your social security statement. (While Social Security faces a deficit, the system will still collect enough taxes to pay at least 75% of promised benefits, even if Congress does not act to consolidate its finances.)
RETIREMENT SAVINGS RATE
How much of your income are you saving for retirement? Is your savings plan likely to allow you to retire when you want? (An online retirement calculator can give you a rough figure.) Anything you can do to close this gap can help you have a more comfortable retirement.
CREDIT SCORES AND DEBT / INCOME RATIO
You will have a better idea of how lenders view your credit applications if you know your credit scores and your debt ratio. (Good credit can also save you money in multiple ways, from interest payments to insurance premiums.) Monitoring at least one of your scores can allow you to see your progress in creating credit. and alert you to any issues, such as identity theft.
To calculate your debt-to-income ratio, combine your monthly debt payments with your current rent or mortgage payment and compare it with your monthly income. A debt-to-income ratio of 36% or less is considered good by most lenders. A ratio above 50% could make it difficult to approve new loans. If your ratio is somewhere between these two points, paying off some of your debt could help you get the loans you want (and help you sleep better at night).
Liz Weston is a NerdWallet Columnist, Certified Financial Planner, and author of “Your Credit Rating.” Email: [email protected] Twitter: @lizweston.