Know your numbers part deux

Know your numbers part two

5/. Net worth

This is the difference between what you own and what you owe. Basically, if we sold everything we own how much money would we have. Bob has $100,000 in investments, $20,000 in savings, $200,000 in house equity, and $50,000 in Kiwisaver. His assets total $370,000.

He owes $10,000 on his student loan and $350,000 on the house mortgage. His liabilities total $360,000.

Bob’s net worth is total assets ($370,000) minus total liabilities ($360,000) = $10,000.

Net worth is a good indication of what position of financial strength we are in. At age 23 a lot of us will have a negative net worth thanks to a student loan.

Some people do not include their house as part of their net worth calculation. The reason being that we all need somewhere to live and if we sold our house we would still need to pay for housing. I understand the point of view, but I still include housing. The reason being that equity in our house can be turned into cash by downsizing, renting out space, or even a reverse mortgage. I don’t include vehicles in my calculation though because I will always need a car and I can’t turn my car into cash flow.

It is your decision on what to include and what not to include, but the key is to keep your calculations consistent. If we keep the variables the same, then we can get a good gauge of our progress. It is quite motivating watching net worth go up. I calculate mine once per month, but you can choose any time frame that suits.  

 

6/. Insurances

It is important to revise how much we are paying in insurance each year. Situations change and if ignored, we may end up paying for far too much or too little insurance. With the birth of our daughter we have had to reassess our life insurance premium and decided we need to add more cover. Whereas, our savings have increased over the last year so we have decided to have higher excesses for our house and contents insurance to save cost.

 

7/. Interest rates

This could range from savings accounts to mortgages to debt. We need to intimately know the interest rates we pay and when they have changed. We need to make decisions on whether to invest or pay off debt on a regular basis, or which debt to pay off first.

 

8/. Kiwisaver fees

For someone investing $10,000 per year in Kiwisaver at 7% returns with annual fees of 1.5%, they will pay $282,000 in fees over the course of 40 years. If we instead only paid 0.5% in annual fees, our fees would only be $112,000. Just by shopping around and paying attention to fees we have saved ourselves $170,000.

 

9/. Emergency fund

It is handy to know how much we have saved in our rainy-day funds. If we don’t know and something bad happens we could find ourselves having to go into bad debt. For more on ideal emergency fund numbers read this article. We all should know how much we have saved so we can determine how many months we can survive on our savings should something bad happen such as a job loss.

 

10/. Mum’s number

I know, not a financial number but still very important nonetheless. Our family is the only one we have, and we should keep in regular contact.

 

Final Thoughts

So there we have it, 10 important numbers that will get your personal finances on track. By tracking our numbers, we can save a lot of money. We can pick up mistakes in our pay checks. We can stop overpaying on certain expenses and fees. We can get better interest rates and credit scores. Not only can we save money, but it is also motivational. Watching our numbers get better ever year is a great motivator once we can see the progress being made. They tell us that we are heading in the right direction. If we don’t know what our numbers are then how do we know we are moving forward?

 

 

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here

 

Comments welcome below. How well do you know your numbers? Are there any other important numbers I have missed?