When it comes to your finances, you might easily overlook some of the numbers that really count.
Here are four to pay attention to now that might really matter in the future.
1. Retirement plan contribution rate
What percentage of your salary are you contributing to a retirement plan?
Making automatic contributions through an employer-sponsored plan such as a 401(k) or 403(b) plan is an easy way to save for retirement, but this out-of-sight, out-of-mind approach may result in a disparity between what you need to save and what you actually are saving for retirement.
Checking your contribution rate and increasing it periodically can help you stay on track toward your retirement savings goal.
Some employer retirement plans let you sign up for automatic contribution rate increases each year, which is a simple way to bump up the percentage you’re saving over time.
In addition, try to boost your contributions when you receive a pay raise. Consider contributing at least enough to receive the full company match (if any) that your employer offers.
2. Credit score
When you apply for credit, such as a mortgage, a car loan, or a credit card, your credit score is one of the tools used by lenders to evaluate your creditworthiness.
Your score will likely factor into the approval decision and affect the terms and the interest rate you’ll pay.
The most common credit score that creditors consider is a FICO© Score, a three-digit number that ranges from 300 to 850. This score is based on a mathematical formula that uses the information contained in your credit report.
In general, the higher your score, the lower the credit risk you pose.
Each of the three major credit reporting agencies (Equifax, Experian, and TransUnion) calculates FICO® scores using different formulas, so you may want to check your scores from all three (fees apply).
It’s also a good idea to get a copy of your credit report at least annually to check the accuracy of the information upon which your credit score is based.
You’re entitled to one free copy of your credit report every 12 months from each of the three credit reporting agencies.
You can get your copy by visiting annualcreditreport.com.
3. Debt-to-income ratio
Your debt-to-income ratio (DTI) is another number that lenders may use when deciding whether to offer you credit.
A DTI that is too high might mean that you are overextended.
Your DTI is calculated by adding up your major monthly expenses and dividing that figure by your gross monthly income. The result is expressed as a percentage. For example, if your monthly expenses total $2,200 and your gross monthly income is $6,800, your DTI is 32%.
Lenders decide what DTIs are acceptable, based on the type of credit.
For example, mortgage lenders generally require a ratio of 36% or less for conventional mortgages and 43% or less for FHA mortgages when considering overall expenses.
Once you know your DTI, you can take steps to reduce it if necessary.
For example, you may be able to pay off a low-balance loan to remove it from the calculation. You may also want to avoid taking on new debt that might negatively affect your DTI.
Check with your lender if you have any questions about acceptable DTIs or what expenses are included in the calculation.
4. Net worth
One of the key big-picture numbers you should know is your net worth, a snapshot of where you stand financially.
To calculate your net worth, add up your assets (what you own) and subtract your liabilities (what you owe).
Once you know your net worth, you can use it as a baseline to measure financial progress.
Ideally, your net worth will grow over time as you save more and pay down debt, at least until retirement.
If your net worth is stagnant or even declining, then it might be time to make some adjustments to target your financial goals, such as trimming expenses or rethinking your investment strategy.
About 360 Financial Group
360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.
Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.
About Cambridge
Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.
IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.
