Hello Readers!
We will soon enter the year 2020, with new hopes, new resolutions, new goals to be achieved, and a lot of excitement. One thing which you must include in your to-do list for the new year, is to check, how well you’re doing financially?
The year 2020, proved to be a tragic year for the whole world, not only people lifestyle, work style, and health was the effect, but their financial planning also turned topsy-turvy for them. Many people lost their job, those who had their emergency fund built, survived the hardship, while those who had not their emergency fund built, find it much difficult to come over this.
Well, when the topic of being financially good is raised, you cannot say that the successful peoples are the most stable because you never what they are going through behind the scenes. The “successful” people you admire may actually have a negative net worth!
To date what I have observed regarding finances is, money is extremely personal, and your expenses are of your kind. Every situation is different. When it comes to your finances, you are only competing with yourself. You have to measure how you are doing against your own personal goals. To start, you need to set a baseline, so you have something to track. Here are the factors that you can keep track of every year.
Your Net Worth
Starting your year with a simple financial statement analysis can work a lot for analyzing your financial position. Do not worry it is not that complex that you are taking it. You only need to list down the estimated value of your assets. Bank and investment accounts are easy because you can look at the balances online. Estimate your real estate values.
Now it is time to recapitulate all your debts. Write down your outstanding debts, including credit card, student loan, and/or mortgage balances. Subtract your debts from your assets, and you have a basic net worth statement.
Your Credit Score
A good credit score helps the individual pay less in interest on student loans, mortgages, car loans, and credit cards. Thus, it acts as a major role in managing your finance. In fact, as per experts, someone with an excellent credit score will save and earn over a million dollars more over their lifetime than someone with a poor credit score.
Now how much is an excellent credit score? An exceptional credit score is 800 or higher. A very good credit score is 740–799, as per the sources.
Your Emergency Fund
An emergency fund or better say the survival fund in times of emergency or hardship. But question is, how much emergency fund we must save? Well, you can decide it by analyzing how many months you could get by if you lost your job.
However, the basic mantra for an emergency fund as per experts is, to shoot for six months of net expenses in an accessible account.
Your Retirement Saving Percentage
Retirement, a period of your life, whose expenses, you need to plan while you are working. Thus, it becomes necessary to know, how you are planning your retirement, how much corpus you are planning to create for your retirement, and for how long retirement you are planning?
Experts say, millionaires on average, save 20% of their income for their retirement. What percentage of your salary are you saving for retirement? Your matching contribution from your employer counts toward that percentage.
Well, from my perception, you should go a 20% overall savings rate — 10% in your retirement account, 5% in your emergency fund, and 5% for other goals.
Your Debt-To-Income Ratio
To calculate your debt-to-income ratio, take the total of your monthly debt payments, such as car loan payments, minimum monthly credit card payments, and student loan payments, and divide it by your gross monthly income.
It’s optimal to be debt-free, of course, but in general, lenders look for a target debt-to-income ratio of 36% or lower.
These parameters are a good start to mark a point in time in your financial life. If you aren’t thrilled with the results you see, don’t panic. This is just a starting point, and all of these measures can be improved. As you improve and grow your wealth, it will be rewarding to look back and see how far you’ve come.
For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee of future returns).