Know Your Personal Savings and Financial Statistics
If you’re like many football fans, you can recite every statistic out there about your favorite team, from the big picture, such as score, win-loss record and league standing, to the details, like total passing yards, average yards per carry and turnovers.
But what about your own financial stats? Your net worth? Your savings? Your FICO score? Your retirement savings trajectory? Why should you have these key numbers at your fingertips? First, to know how you’re doing, and second, to assess what it will take to get where you want to be. Let’s break down what these numbers actually mean.
Individual net worth may sound complicated, but it’s really a matter of some addition and subtraction. First, total up your bank accounts, retirement accounts, investment accounts, your home’s market value, any business interests, the estimated value of your possessions and the cash value of your life insurance. These are your assets. Then, add up such things as the balance on your mortgage, car and student loans and credit card balance. These are your liabilities. Subtract your liabilities from your assets to find your net worth.1 For comparison, the average American has a net worth of $68,828, according to the U.S. Census Bureau's latest numbers.2
Pro tip: Finding creative ways to live within your means is one way to reduce your debt and increase your net worth.
Rate of Savings
How much do you save? The average American puts away about 5 percent of his or her income.3 If you don’t have one already, set up a personal savings account, and be disciplined about regularly making deposits of 15 to 20 percent of your income using direct deposit through your employer. You can also have your tax refund deposited directly into savings, rather than into a checking account. Set up a regular check-in to see how your savings is growing, whether monthly, quarterly or annually.
Pro top: Avoid the temptation to look at your savings too frequently: i.e., hourly, daily or weekly. Awareness is healthy. Obsessing, not so much.
Related to your rate of savings, your total savings is a critical number to keep track of, too. Total up your retirement savings accounts and your personal savings accounts. Ideally, for your personal savings, you want the equivalent of one year’s income to cover emergencies and unexpected events.
Pro tip: Avoid dipping into your savings. You may even want to keep your savings account(s) in separate banks from your checking account to make transfers more difficult.
Related to debt, your credit rating, represented as a FICO score, affects your ability to take out a loan. This rating is based on five categories, composed of many data points. The categories are payment history, amounts owed, length of credit history, credit mix and new credit.4 The FICO score ranges from 300 to 850, and the average is 700.5 How can you raise your score? First, get a copy of your credit report so you know your rating. Then, set up reminders to make sure you pay your bills on time. And try to keep a low balance on your credit cards.6
Pro tip: If you find your credit card balances are getting away from you, limit yourself to a single card, preferably a rewards card with no annual fee. And if you are really having trouble, consult with a reputable debt consolidator to help you manage payments and reduce your rates.
The most common retirement accounts are 401(k)s, provided pre-tax through employers; traditional IRAs, which are available on the open market, are tax-deductible now and taxed during retirement; and Roth IRAs, which are also available on the open market, are not tax-deductible and not taxed during retirement. Total them up to find your amount. Then, benchmark it against a reliable retirement calculator, like this one, to help you estimate your needs and where you are on the path to retirement.
Pro tip: As you may have gathered, planning for retirement can be complex, and a financial professional can help you create and execute a comprehensive plan.
The average total life insurance coverage replaces just three years of household income.7 How well are you and your family protected in the event of a death or inability to work? It’s important to know both how much protection you have and how much you really need. For how much you have, total up all your policies. Then, here’s a simple guideline for calculating how much life insurance you need: In your 20s, you ideally want coverage equal to 30 times your income. In your 30s, 20 times your income. In your 40s, 15 times your income. In your 50s, 10 times your income. And, finally, in your 60s, five times your income. Check out this handy article with an infographic for more details.
Pro tip: In addition to the death benefit, a whole life insurance policy is a cash value asset that can be used to diversify your investments. But unlike equities and bonds, it is immune to fluctuations in value.
These are just some of the basic stats to have at your fingertips year-round. Once you know your key financial stats and how you stack up, you can identify where you need practice and, with the help of a financial professional, map out a winning game plan.