This article is reprinted with permission from NerdWallet. Your doctor needs to know certain numbers to judge your physical health, such as your weight, your blood pressure, and your cholesterol levels. Similarly, you need to know certain numbers to monitor your own financial health, including:
After-Tax Income and “Essential” Expenses Your after-tax income is your gross income minus the taxes you pay (federal, state, and local income taxes, plus Social Security and Medicare taxes). If you receive a fixed paycheck, you can use your last pay stub to calculate this figure. If not, check your most recent tax return. Divide your after-tax income by the number of hours you worked to earn it. That gives you a rough idea of how long you are trading when you buy something. For example, if you make $ 20 an hour after taxes and something costs $ 100, you have to work five hours to pay for it. Knowing that number can help you make more conscious money decisions. Your after-tax income is also the foundation of the 50/30/20 budget, a spending plan that helps you balance current expenses, debt payments, and savings. That budget suggests limiting your essential or essential expenses (housing, utilities, transportation, food, insurance, minimum loan payments, and child care needed to work) to 50% of after-tax income. Wishes, such as vacations and dining out, account for 30%. That leaves 20% for savings and additional debt payments. Capting must-haves can help you survive a job loss or other financial setback. You can also use the limits to determine if you can pay off a new loan. If payment pushes your must-haves above the 50% mark, the answer may be no. Lifetime Income and Net Worth You can access your Social Security statement, including your lifetime earnings history, by registering at socialsecurity.gov/myaccount. Add up your annual earnings, plus any other income you’ve received, such as gifts, inheritances, investment income, pensions, under-the-table earnings, or government benefits. (Estimates are fine). Now calculate your net worth by subtracting what you owe (your debts, including loans, credit card debt, and mortgages) from what you own (your assets, such as your home, retirement accounts, investments, and savings). Compare your net worth to your lifetime income to see what you have done with the money that came your way. See: What is your net worth and how does it compare to others? There is no objective scoring system. Like the hourly wage figure, this exercise is designed to make you more aware of what you do with your money. If you think you should have more to show for the money you have received, consider trying to save more of your income. Total Retirement Age and Expected Social Security Benefit Your full retirement age is the age at which you are entitled to 100% of the Social Security benefits you have earned. If you apply for benefits before that age, your checks will be permanently reduced. If you delay your application until after full retirement age, you may qualify for deferred retirement credits that increase your benefit by 8% each year until age 70, when benefits peak. The full retirement age has been gradually increasing. For those born from 1943 to 1954, their full retirement age was 66. After that, the full retirement age increases by two months each year: it is 66 and two months for people born in 1955; 66 and four months for people born in 1956, and so on. The full retirement age is 67 for people born after 1960. Plus: Will Social Security Still Exist If I Wait To Claim It? To better plan for your retirement, you need to have an idea of how much you can expect from Social Security. You will find your estimated benefits on your Social Security statement. (While Social Security faces a deficit, the system will continue to collect enough taxes to pay at least 75% of promised benefits, even if Congress does not act to shore up its finances.) Retirement Savings Rate What percentage of your income are you saving? for retirement? Is your savings plan likely to allow you to retire whenever you want? (An online retirement calculator can give you a ballpark figure.) Anything you can do to close this gap can help you have a more comfortable retirement. See: How Do You Feel About Risk In Your Retirement Investments? Credit scores and debt-to-income ratio You’ll get a better idea of how lenders view your credit applications by knowing your credit scores and debt-to-income ratio. (Good credit can also save you money in many ways, from interest payments to insurance premiums.) Monitoring at least one of your scores can allow you to see your credit-building progress and alert you to issues, such as identity theft. Also read: 8 Tips to Maximize Your Credit Card Rewards To calculate your debt-to-income ratio, combine your monthly debt payments with your current rent or mortgage payment and compare it to your monthly income. Most lenders consider a debt-to-income ratio of 36% or less to be good. A ratio greater than 50% could make it difficult to approve new loans. If your ratio falls between those two points, paying off some of your debt could help you qualify for the loans you want (and help you get a better night’s sleep). More from NerdWallet Liz Weston writes for NerdWallet. Email: email@example.com. Twitter: @lizweston.