7 Numbers You Must Track For Good Financial Health

Just like we go for regular health check-ups to stay physically fit, our financial health also needs regular check-ups. One of the best ways to do this is by keeping track of key numbers that reflect your overall money situation. These numbers can guide your decisions, help you avoid financial stress, and bring you closer to your goals.

Here are the 7 important financial numbers that one should be tracking for good financial health:

1. Emergency Fund

Emergency fund numbers determine the duration your emergency savings can cover your monthly living expenses without any earnings or something that cannot be covered with your normal savings. These expenses may include rent, groceries, and bills, etc. It is important to have an adequate emergency fund that will not only sustain your daily expenses but also will extend advantages in medical emergency.

Emergencies can happen anytime, like job loss or home repairs. If you have savings to cover at least 3 to 6 months of expenses, you'll feel more secure and won't need to take on debt during tough times.

How to calculate Emergency Fund:

There is no fixed formula to derive a number as the emergency fund can be very subjective to one's need. However, one can apply the given formula to see for how many months, his/her emergency savings can last. It is preferable to save a little more than the formula's product.

Formula: Total emergency savings ÷ Monthly expenses = Months of coverage

2. Percentage of Income Saved for Retirement

This is the portion of your monthly or annual income that you save for your future, including retirement and investment, like PF, NPS, or mutual funds. It is important to take certain factors into account while saving for retirement. These factors include expected lifestyle, expenses in retirement, insurance premium and cash flows to meet daily expenses, etc.

The earlier you start saving for retirement, the larger the corpus. It is also important to be consistent and disciplined in your savings to benefit from compounding. Over time, even small amounts can grow into a large retirement fund. Experts recommend saving at least 10–15 per cent of your income for retirement.

3. Your Net Worth

Your net worth is the value of everything you own. This may include property, savings and investments. However, it is important to deduct your loans and liabilities to determine an accurate figure of your net worth. Net worth gives you a clear picture of your financial position.

A positive and growing net worth means you're building wealth. If your net worth is negative, it's time to reduce your debts by repayment of the debt. This can be done by timely repayment without missing any EMI to retain a good credit score. Another way is to increase your risk appetite or by investing aggressively.

How to Calculate Net Worth

Net worth = Total Assets –Total Liabilities

4. Outstanding Credit Card Debt

If you use credit cards, it's important to track how much you owe and whether you're paying it off on time. Carrying a high balance month after month can lead to large interest charges and financial stress. Try to pay off the full balance each month to avoid debt build-up. Only use your card for what you can afford to pay back immediately. A credit card debt can affect your credit score negatively. A poor credit score can directly lead to the banks questioning your creditworthiness, hence resulting in loan rejection.

5. Parents Saving For Children's Education

If you have children, it's important to save regularly for their education. It is especially vital if you plan to send them to college or university. Costs of higher education are rising. Contributing to education savings plans early can reduce the need for student loans. Also, helping your child maintain a good academic record may open up scholarship opportunities. A good education may lead to a higher-paying job benefiting the entire family. It may also help improve your lifestyle. If your children are earning well and can support themselves, it will reduce dependence on you. Lesser dependents may help you gain higher affordability or income to invest further towards retirement.

6. Debt-to-Income Ratio (DTI)

DTI is the percentage of your income that goes toward paying debts. This debt may be credit card debt, home loans, personal loan, etc. Calculating DTI will give you an accurate image of your financial standing. It will also help you determine how much you are paying in debt from your income. A higher debt ratio may lead to making lifestyle compromises. This number is especially important when you want to buy a home or apply for a large loan. A lower DTI, ideally one which is below 36 per cent, shows that your debt is under control, resulting in loan approval.

How to Calculate DTI:

You can simply calculate DTI on your own with the given formula:

Monthly debt payments ÷ Gross monthly income × 100 = DTI %

7. Budgeting Ratio for Discretionary Spending

This is the percentage of your income that you spend on non-essential items such as eating outside, entertainment expenses, shopping, and other lifestyle expenses. It is easy to overspend on wants rather than needs. Aim to keep these expenses under 30% of your income to stay financially balanced. This ensures more money is left for savings, investments, and important goals. Smart spending does not only translate to making a smart investment or investing all your money.

It is also important to take small joys of life without compromising your budget. To balance both aspects of life, you need to set hard and non-negotiable boundaries in your monthly budget. Keep necessities at the top; make it a monthly routine to pay your bills and financial obligations first. Invest at least 10-15 per cent of your income monthly in a disciplined manner. When there is any income left, you may put it towards your wants, like eating outside food or entertainment.

Conclusion

Keeping track of these seven financial numbers helps you stay in control of your money. They tell you if you're prepared for emergencies, saving enough for the future, living within your means, and making progress towards your goals. Tracking financial health is vital tostayingy financially afloa,t especially in bad times. Start by checking where you currently stand in each of these areas. With regular tracking and small improvements, you'll be on the path to strong and healthy finances.