How do you know you’re winning?

How do you know you’re winning?

You’ve got to take stock!

With long range projects, it’s hard to see the success you’ve made and know if you’re on track or even winning. That’s why people create milestones and ways to track progress.  Well, financial wellness is a really, really, really long project!  You‘ve got lots of phases, lots of moving parts, debts that span 30 years and retirement funding that will go much longer than that.  You need a way to track your progress. If you don’t stop and take stock, you could find that years go by and you’ve been going in circles instead of moving forward.

By setting up a system and using the same metrics every year, or maybe even every few months, you will see your progress.

These metrics are designed for those who are NOT in retirement. Our wellness program can help those in retirement stay within their budget and handle tasks, so these metrics won’t quite match.

Taking Stock of Your Financial Picture is February’s Fiscal Fitness Challenge.

By now you have received all of your year- end statements and W2s.  This means you have everything you need to take a look at last year and assess your key indicators.  By tracking your key indicators year to year, you will see your progress.  Here’s what to do:

1. Update or compile your net worth statement: List assets by category of cash, investments, retirement plans, personal property. Then list liability categories of real estate mortgage debt, business/investment debt, student loans, and consumer debt (auto, credit cards, personal loans).  Here’s the simple math: Assets – Liabilities = Net Worth.  Look at what categories are changing year to year. If you are increasing your net worth but it’s all in personal possessions, know that those are hard to eat in retirement.  If you’ve increased savings, but net worth isn’t changing, it may be because debt is going up, too!

2. Calculate what you spent last year: Here’s the simple math: Taxable income + increase in debt from last year –  taxes and savings = What you spent last year.  We don’t always know where the money went  (debt reduction, eating out, mortgage, etc.), but we know that’s what your lifestyle cost you last year.  Note what your take home pay is per month, because you’ll need it for some other calculations.

3. DEBT TRACKING: One of the best feelings when it comes to money is to see debt doing down. We work hard at helping people take control of their debt and consistently help people put together a plan that cuts their debt free date by years.   Tracking these two items will tell you how you are doing over time.

a. Non Mortgage Debt to income Ratio: All monthly debt required payments other than mortgage divided by monthly take home pay. Ideal is less than 20%. This is what lenders use, in addition to credit score, to determine whether and at what rate they will lend you money.

b. Credit Score: Use Credit Karma or Mint (use the same source each time). Getting your score above 720 will save LOTS of money on loan interest based on interest rates. AND such things like homeowners, auto coverage and sometimes even salaries can be impacted!

4. ASSET TRACKING:  You can see increases in assets by looking at your net worth statement, but these two indicators tell us how well you will cope with what life throws at you.

a. Cash Reserves:  Amount of liquid reserves beyond current month’s bills.  Ideal is between 3- 6 months of take home pay. This is the biggest stress reduction tool we know.

b. Savings Rate: The percentage both you and your employer are saving as a percentage of income. Ideal is 20%. Whether that money is for retirement, education, vacations or landscaping doesn’t matter.  Saving money means you will have the resources in the future. It may not go exactly to the specific goal, but it gives you a buffer in life.

5. FINANCIAL STRESS: Financial stress impacts more than your sleep.  Research shows it has important health implications.  Getting on top of your finances also means getting on top of your stress.  If stress is picking up, then it means time to make new plans! Take the financial stress quiz and track your stress. You can opt in to discuss your results with one of our coaches.

6. Define Your Personal Trackers and decide what success is for you.  Examples range from goals on cutting back on eating out to setting aside 2 hours for financial projects and then doing them each month. It could be money towards debt reduction, extra work or tracking clothes spending. It might be a joint family conference to review your budget and making spending decisions thoughtfully every two weeks. Whatever you think will make the most difference in your financial life should be tracked. Figure out HOW you are going to track it and what progress looks like. Pick just one or two items to focus on at a time.

If you are a club member, ask your coach for the 2017 playbook that has now incorporated a place to track these key indicators, calculate your net worth and more.  If you aren’t a club member, you can find resources on the net (or consider joining!). Club members can also access the planning software to update your net worth. You’ll be able to see the impact today’s financial choices and metrics will have on your goals and retirement over the long term!

Doing this the first time will give you the starting point, so it’s important to revisit these numbers consistently to see your progress.  We recommend to track your progress every 3 months to see what is changing, which will keep you motivated to stick to your plan.

Now go take stock, so you can decide where you need to place your focus this year!  Our next blog will be on establishing your plan for this year….but you can’t do that unless you know where you are starting from!

Interested in becoming a member of Fiscal Fitness Clubs?  Send us an email or set up a call HERE.


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