To achieve financial success – whatever it may mean for you – you need a plan to get there and metrics to track along the way to see how you’re doing. On that note, here are 5 metrics you need to track to measure your progress.
Savings Rate
Considered to be one of the most important metrics to track, your savings rate is essentially the percentage of your take-home salary that you set aside for any savings instrument (eg emergency fund, investments, short-term goal planning).
How To Calculate: Deduct your expenses from your take-home salary, afterwhich divide that amount by your income x 100.
Why Is It Important: Having the mentality to maintain high savings rate might reflect positive financial habits such as discipline in your spending. According to The Saving Scientist, experts suggest a savings rate of 10%.
Spending
Checking your account balance and wondering where all your money went? Then you might need to be better at tracking your spending. For those who prefer to manually keep track of your spending, keep a logbook of all your expenses daily. Make it a habit to keep your receipts, and note them down at the end of the day before you turn in.
Alternatively, go digital with money management apps such as Spendee, or Wally for a more convenient tracking.
How To Calculate: Segregate your expenses into two parts – fixed expenses (ie. these won’t change monthly such as mortgage, health insurance, car loans, internet bills, rent, etc) and variable expenses (ie. these might change monthly such as utilities, groceries, entertainment, etc). This way you’d know if there are areas that you might need to cut back on.
Why Is It Important: With your expenses being one of the metrics that could change drastically month-on-month, this could impact other money metrics such as your savings and net worth. It could also act as a warning bell to manage your cash flow better.
Net Worth
Your net worth is a measure of everything you own (your assets) minus the things that you owe (your liabilities or debts). With people having various assets (property, savings account, jewelry, value of vehicle etc), we would usually start off with different net worth.
How To Calculate: Add up the value of all your assets and subtract the value of all your liabilities.
Why Is It Important: Your net worth reflects the amount of everything you own. Ideally, it should increase over time. Keep in mind that your investments might increase over time, but if you’re making the smart investment decisions and spending less than you earn, your net worth should continue to increase.
Your net worth reflects the amount of everything you own. Ideally, it should increase over time.
Passive Income
With many of us looking to retire comfortably, we’re always finding ways to make our money work for us rather than the other way. One of the best ways to earn passive income is to find what you’re good at and love doing, and turn it into a side business.
How To Calculate: Be mindful of all the invoices you’re charging your clients (these might get really messy if you’re doing everything on your own!), and add up all the other income streams you have that isn’t your main salary.
Why Is It Important: Most of us would rely on our day jobs for financial security, but keeping track of your passive income would give a clearer picture on how far you are from your goals.
Investment Fees
While you may not be able to control the markets, you can however control the investment fees. As your investment grows, that fees charges to you (be it for the financial advice or for services) starts to erode your investment significantly. In fact, it can eventually cost you up to 40% of your retirement.
One question to ask would be: Are you keeping your investment fees as low as possible to help your portfolio grow faster?
How To Calculate: Any managed mutual funds, index funds and exchange-traded funds (ETFs) charge fees to cover the costs of managing and administering the fund.
Some funds charge a one-time sales fee (called load) when you buy the fund, while some funds charge a one-time redemption fee when you sell the fund.
Why Is It Important: While your investments are compounding in growth each year, so are your fees. You’d need to keep in mind that the less you pay in fees, the more you’ll benefit from market returns on your investment. What this means? More money in retirement.
