Quick Take: 3 "Numbers" you must get a fix on

By Larissa Fernand | Jan 06, 2023

To get a better handle on your finances, figuring out these "numbers" is the first crucial step.

Net Worth

The net worth number is simply assets minus liabilities. The number in isolation doesn't tell you too much, but it is a useful benchmark to track over time. A negative net worth figure would obviously indicate room for improvement.
Read 3 wealth creation hacks.

Debt Ratio

To calculate your debt ratio, you'll need to add up all required monthly debt payments (home loans, student loans, auto loans, credit card debt). Divide the total by your monthly gross (pretax) income. Lower is obviously better for this number. Amy Arnott, portfolio strategist for Morningstar, says that any number greater than 43% must be viewed with caution.
To focus on paying off loans to free up more cash flow to funnel toward other goals, read The psychology of debt repayment.

Emergency Fund

Most financial advisers recommend keeping at least three to six months' worth of monthly living expenses in cash or other low-risk, highly liquid assets to cover a sudden job loss or other unforeseen events. Some investors may want to keep closer to 12 months' worth of expenses. You determine what works for you, depending on whether there are other members in the family who earn, the number of dependents, how steady your income is, and what is the structure of your outgoings.
Read: 4 things an Emergency Fund is not.

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