Three Numbers to Know if You Want to Get Good with Money

If you want to become better at managing your own money, knowing some critical personal finance numbers is for sure important for your journey. Today, I’d like to share with you three key numbers that you should know to help you become your own money expert.

Your Net Worth

Calculating your net worth is the first step towards creating a financial plan. According to Investopedia, your net worth is the value of the assets you own, minus the liabilities you owe. Sounds complicated? To put it in simple terms, it is basically all the stuff you own that has value (your house, your cash, your investments and your savings accounts), minus all the debt you have (e.g., credit card debt, mortgage and student loans).

Tracking your net worth helps paint a realistic picture of your current financial situation, and gives you a reference point for measuring progress. Personally, knowing and tracking my net worth is a great motivating factor for me to keep up with my savings habits.

If you are interested in an Excel-based tool to track your net worth, you may want to consider subscribing to my newsletter. You will get a copy of my very own net worth tracker for free! And yes, I do use this net worth tracker on a regular basis. Of course, in addition to a handy tool, you will also get the benefit of receiving the freshest blog posts from me on a regular basis, directly in your inbox.

If you are not an Excel person, however, don’t worry! Online calculators such as this cute little pink one can be your friend. No spreadsheets, no Excel formulae. Just enter in what you have in your various bank and investment accounts, and you can have a good idea of your net worth in no time.

Curious to know how celebrities amass their fortune? Head to the following posts to find out!

Your Budget

Budgeting is important, especially during the pandemic. Budgeting is simply an estimate of income and expenditure for a set period of time, usually a month. Annual budgets can also be used if your monthly income is not even, or if you want to factor in big one-time expenses throughout the year, such as home repair or purchasing a car.

Knowing how much you take home each month and how much money you must spend or can spend by category is critical in ensuring that you do not unwittingly end up overspending and amassing unnecessary debt.

There are, in general, two ways you can build a budget. You can either use an Excel spreadsheet, or a money-managing tool.

Excel based tools

Many personal finance experts have developed various Excel spreadsheets for you to download, and many offer them for free. For example, My Money Coach offers a free budget tracker and calculator for you to download. You may also head to The Balance and find 6 different sources of budget templates to choose from.

Web-based calculators or apps

If you aren’t familiar with Excel, however, here is an alternative solution: find an online calculator, or an app, that works for you. Pigly, for example, offers a great web-based calculator that break down your expenses by category, with suggested percentages for you to form a baseline.

It is very simple to get a baseline budget using this calculator. All you need to do is to enter your income, and hit “Calculate budget”. The calculator will automatically populate the numbers by category for you.

Here is an example of John earning $40,000 a year. Of course, all numbers are adjustable, so if you want to increase your savings rates, you can simply increase Range from 5% – 10% to 10% – 15%, or more (Kudos to you!)

Other alternatives are also available. NerdWallet has a great article on the 7 best budget apps that you may want to check out.

Your Savings

Now that you know how much you should save every month with your budget, step one is that you should make a commitment to actually put aside the set amount of money every month. Of course, you probably shouldn’t put away your money under your mattress, for three reasons:

  • It may not be the safest place
  • You are not letting your money work for you through interest
  • You are missing out on the magic of compounding

In most cases, if you put your money aside in a high-yield savings account, the money can make some money for you while it is parked at the bank. The extra money generated is the interest you earn. Why do banks pay interest? This is because banks can use the money you deposit into your savings account and lend it to borrowers, who will pay interest on loans. Banks make money off the borrowers, and they pay interest in order to attract savers. Forbes has an interesting article on deposit interest to explore this topic further. You may want to check it out here.

What’s even better about the interest is the magic of compounding. That is, the interest you earn from your principal (the original amount you saved) earns interest as well. The process of compounding can increase your savings rate, provided that you leave the interest earned in your savings account.

After you make a commitment to putting money aside and actually practice it for a while, you will for sure be curious to know how much money you will have in the future. This is where a savings calculator can come in handy. You can simply enter the amount that you deposit into your savings account every month, and the annual interest rate (which is usually published by your bank), and the calculator can show you how much interest you will be able to earn.

Isn’t it a wonderful feeling to know how much money your diligent savings habits are helping generate even more money?

To learn more about some upgrades you can adopt to grow wealth, check out this article here!


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4 thoughts on “Three Numbers to Know if You Want to Get Good with Money”

  1. Lovely post and very informative and insightful for me. I budget but I’m not thay great with it. At the end of the month I often always say “I didn’t go anywhere or did any shopping so where does the money go”. When I check, majority is bills and grocery. Especially if you live in New York. Forget about it! The expenses are ridiculous.

    Thanks for sharing

    Reply

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